In the Nineteen Seventies, correlations between world stock markets began to extend. This trend continued for nearly half a century as globalization took hold and dominated much of the era. But that modified when COVID-19 broke out in earnest in February 2020.
While tariff disputes had already disrupted supply chains in previous years, the outbreak of the worldwide pandemic in early 2020 accelerated the decoupling between global stock markets and altered their relationships with one another, potentially ushering in a regime change in global finance.
Our study of stock market indices since 2015 shows one clear finding: the common correlation of every individual index with all other indices has fallen.
For most, the decline was small. For example, the S&P 500’s correlation with all other markets fell from 0.71 within the period 2015 to 2022 to 0.66 within the period January 2022 to December 2023. But for the Shanghai Stock Exchange Composite Index (SSE) and the Hang Seng (HSI) In mainland China and Hong Kong SAR, in addition to the RTS in Russia, correlations differed from all other markets within the recent period.
| 2015 to 2020 | February 2020 to December 2023 |
January 2022 to December 2023 |
|
| S&P 500 | 0.71 | 0.70 | 0.66 |
| FTSE 250 | 0.69 | 0.71 | 0.60 |
| DAX | 0.68 | 0.71 | 0.64 |
| CAC 40 | 0.68 | 0.69 | 0.62 |
| NKX | 0.62 | 0.63 | 0.56 |
| HSI | 0.56 | 0.35 | 0.22 |
| SSE | 0.42 | 0.35 | 0.16 |
| TSX | 0.70 | 0.73 | 0.65 |
| RTS | 0.57 | 0.42 | 0.10 |
| GDP | 0.65 | 0.68 | 0.63 |
| KOSPI | 0.54 | 0.59 | 0.37 |
| SNX | 0.56 | 0.63 | 0.50 |
| IPC | 0.57 | 0.65 | 0.56 |
| AOR | 0.64 | 0.71 | 0.63 |
The SSE and HSI had a median correlation of 0.42 and 0.56, respectively, with all other indices from 2015 to 2020. However, from 2022 to 2023, these correlations decreased to 0.16 and 0.22, respectively. Meanwhile, the common correlation of the RTS fell from 0.57 to 0.10 over the 2 sample periods. These three indices recorded the biggest declines from 2015 to December 2023, according to other global stock indices.
The following tables show the correlations between the assorted market indices and their counterparts from 2015 to 2023. In addition to the stock markets mentioned above, our evaluation includes the FTSE 250 within the UK, the DAX in Germany, the CAC 40 in France; the Nikkei (NKX) in Japan, the TSX in Canada; the BVP in Brazil, the KOSPI in South Korea, the SNX in India, the AOR in Australia and the IPC in Mexico. The average correlation across all pairs is 0.65.
Changes within the correlation of worldwide markets
2015 to 2020
| S&P 500 | FTSE 250 | DAX | CAC 40 | NKX | HSI | SSE | TSX | RTS | GDP | KOS PI |
SNX | IPC | AOR | |
| S&P 500 | 1.00 | |||||||||||||
| FTSE 250 | 0.85 | 1.00 | ||||||||||||
| DAX | 0.82 | 0.79 | 1.00 | |||||||||||
| CAC 40 | 0.78 | 0.81 | 0.91 | 1.00 | ||||||||||
| NKX | 0.78 | 0.73 | 0.84 | 0.81 | 1.00 | |||||||||
| HSI | 0.65 | 0.55 | 0.52 | 0.54 | 0.54 | 1.00 | ||||||||
| SSE | 0.51 | 0.38 | 0.44 | 0.37 | 0.47 | 0.72 | 1.00 | |||||||
| TSX | 0.86 | 0.85 | 0.78 | 0.77 | 0.67 | 0.53 | 0.39 | 1.00 | ||||||
| RTS | 0.66 | 0.61 | 0.60 | 0.61 | 0.51 | 0.52 | 0.42 | 0.71 | 1.00 | |||||
| GDP | 0.77 | 0.72 | 0.71 | 0.69 | 0.66 | 0.69 | 0.48 | 0.72 | 0.58 | 1.00 | ||||
| KOSPI | 0.56 | 0.55 | 0.52 | 0.51 | 0.39 | 0.54 | 0.43 | 0.64 | 0.71 | 0.53 | 1.00 | |||
| SNX | 0.67 | 0.66 | 0.58 | 0.55 | 0.50 | 0.55 | 0.31 | 0.67 | 0.36 | 0.64 | 0.56 | 1.00 | ||
| IPC | 0.58 | 0.67 | 0.69 | 0.65 | 0.50 | 0.48 | 0.24 | 0.66 | 0.57 | 0.66 | 0.58 | 0.63 | 1.00 | |
| AOR | 0.77 | 0.82 | 0.75 | 0.76 | 0.67 | 0.43 | 0.33 | 0.83 | 0.54 | 0.57 | 0.53 | 0.68 | 0.60 | 1.00 |
The correlations between all indices from February 2020 to December 2023 are shown within the chart below. The values ​​in italics indicate the correlations that decreased in comparison with their counterparts from 2015 to 2020.
The correlations of SSE, HSI and RTS with most, if not all, other indices declined over the 2020 to 2023 sample period. Supply chain disruptions, COVID-19 countermeasures in China and the sanctions imposed on Russia for its invasion of Ukraine in 2022 could possibly be potential triggers for this phenomenon. However, though Russia became more depending on China through the reporting period on account of geopolitical considerations, the performance of the stock markets there still varied.
In the United States, the S&P 500’s correlations fell with NKX, HSI, SSE and RTS, but rose with all others.
Changes within the correlation of worldwide markets
February 2020 to December 2023
| S&P 500 | FTSE 250 | DAX | CAC 40 | NKX | HSI | SSE | TSX | RTS | GDP | KOSPI | SNX | IPC | AOR | |
| S&P 500 | 1.00 | |||||||||||||
| FTSE 250 | 0.84 | 1.00 | ||||||||||||
| DAX | 0.87 | 0.86 | 1.00 | |||||||||||
| CAC 40 | 0.83 | 0.87 | 0.93 | 1.00 | ||||||||||
| NKX | 1.00 | |||||||||||||
| HSI | 1.00 | |||||||||||||
| SSE | 1.00 | |||||||||||||
| TSX | 0.91 | 0.87 | 0.89 | 0.88 | 0.70 | 1.00 | ||||||||
| RTS | 0.54 | 1.00 | ||||||||||||
| GDP | 0.83 | 0.80 | 0.81 | 0.73 | 0.78 | 0.80 | 1.00 | |||||||
| KOSPI | 0.65 | 0.65 | 0.68 | 0.62 | 0.62 | 0.76 | 0.65 | 1.00 | ||||||
| SNX | 0.70 | 0.77 | 0.67 | 0.66 | 0.65 | 0.35 | 0.77 | 0.46 | 0.67 | 0.74 | 1.00 | |||
| IPC | 0.77 | 0.78 | 0.81 | 0.82 | 0.66 | 0.31 | 0.85 | 0.74 | 0.69 | 0.67 | 1.00 | |||
| AOR | 0.84 | 0.92 | 0.81 | 0.82 | 0.73 | 0.43 | 0.90 | 0.81 | 0.73 | 0.79 | 0.78 | 1.00 |
Our final table shows the correlations between all indices from January 2022 to December 2023, where the values ​​in italics again denote the correlations which have decreased in comparison with the period 2015 to 2020. The correlations in daring and italics are negative. Again, the HSE and SSI correlations with just about all other markets weakened, particularly with each the KOSPI and the SNX. This is a big turning point in comparison with the pre-pandemic years and will reflect increased competition on account of supply chain disruptions and restructuring.
Changes within the correlation of worldwide markets
January 2022 to December 2023
| S&P 500 | FTSE 250 | DAX | CAC 40 | NKX | HSI | SSE | TSX | RTS | GDP | KOSPI | SNX | IPC | AOR | |
| S&P 500 | 1.00 | |||||||||||||
| FTSE 250 | 1.00 | |||||||||||||
| DAX | 0.87 | 0.85 | 1.00 | |||||||||||
| CAC 40 | 0.86 | 0.87 | 0.95 | 1.00 | ||||||||||
| NKX | 0.86 | 1.00 | ||||||||||||
| HSI | 0.02 | 1.00 | ||||||||||||
| SSE | 0.16 | 0.66 | 1.00 | |||||||||||
| TSX | 0.89 | 0.87 | 0.88 | 0.68 | 0.28 | 0.18 | 1.00 | |||||||
| RTS | 0.29 | 0.18 | 0.15 | 1.00 | ||||||||||
| GDP | 0.84 | 0.80 | 0.82 | 0.76 | 0.83 | 0.21 | 0.26 | 0.80 | 1.00 | |||||
| KOSPI | 0.60 | 0.56 | 0.65 | 1.00 | ||||||||||
| SNX | 0.74 | 0.69 | 0.63 | 0.64 | 0.70 | 0.67 | 0.62 | 1.00 | ||||||
| IPC | 0.80 | 0.77 | 0.75 | 0.61 | 0.11 | 0.20 | 0.88 | 0.72 | 1.00 | |||||
| AOR | 0.82 | 0.87 | 0.78 | 0.81 | 0.68 | 0.43 | 0.08 | 0.87 | 0.87 | 0.73 | 0.74 | 1.00 |
Overall, these results highlight the elemental restructuring that has taken place in global stock markets since 2020. The wave of globalization that took shape within the Nineteen Seventies led to unprecedented synchronicity in global markets and lasted almost half a century.
But judging by market correlations within the post-COVID-19 period, this trend of internationalization has peaked and is starting to subside. Over the past three years, the final trend in global stock markets, particularly those of Russia and China, has reversed. Whether this alteration in direction is short-lived or the start of a profound change like within the Nineteen Seventies might be seen in the approaching months and years.
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Photo credit: ©Getty Images/JamesBrey
