[theory6453]

As I'm a noob I wonder if this question is appropriate here:

I'm noticing that most shares seem to correlate quite strongly with the various indices and that UK, US, European and Japanese indices seem to be closely correlated as well. E.g. most things seem to be dropping right now and I suspect things will all go back up when we get out of the current pullback.

As an example of correlation a Nordic fund I bought into a month of so back seems to very closely match the FTSE250.

This seems to negate efforts to diversify outside ones home market. The only things that seem not to be tightly correlated seem to be going down or at best widely fluctuating with an overall very long lumpy trend.

It would be nice if diversifying would smooth out the peaks and troughs, but I can't see a good way to do it. What do other people do, just not worry about it?

Correlation in stocks in the world markets tends to be very high due to numerous reasons, and the US market tends to be the main driver in general due to the higher volumes that trade it. So unfortunately diversification within stocks won't protect you from market corrections as the majority have strong correlations with the indexes. So the only way to get true diversification is to trade in different asset classes. i.e. stocks, bonds, commodities, precious metals, property, treasuries etc. As for example stocks and treasuries have a fairly inverse relationship, whereas the others move for their own reasons.

Agree with Isatrader... If you want a true hedge on equities, you're going to need to invest in a different asset class... most commonly bonds or gold/silver. These are the types of things that people move their money into when equities are tanking and vice versa. The equities indexes around the world closely follow each other so when one is up/down, the others are likely to do the same due to the tight correlation.

Diversification outside of one's one market is encouraged but if it's in the same asset class (equities) then its likely going to do what the rest of the global market is doing.

Hope that helps.