A random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing

TWO-YEAR 
ROLLING
CORRELATION BETWEEN S&P
500 AND MSCI EAFE INDEX

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TWO-YEAR 
ROLLING
CORRELATION BETWEEN S&P
500 
AND 
MSCI 
EMERGING-
MARKETS INDEX

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TWO-YEAR 
ROLLING
CORRELATION BETWEEN S&P
500 
AND 
GSCI 
COMMODITY

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INDEX
But note that even though correlations between markets
have risen, they are still far from perfectly correlated, and
broad diversification will still tend to reduce the volatility of a
portfolio. And even over periods when different equity
markets tended to zig and zag together, diversification still

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provided substantial benefits. Consider the first decade of the
twenty-first century, which was widely referred to as a “lost
decade” for U.S. equity investors. Markets in developed
countries—the United States, Europe, and Japan—ended the
decade at or below their levels at the start of the decade.
Investors who limited their portfolios to stocks in developed
economies failed to earn satisfactory returns. But over that
same decade, investors who included equities from emerging
markets (which were easily available through low-cost,
broadly diversified emerging-market equity index funds)
enjoyed quite satisfactory equity investment performance.
The following graph shows that an investment in the S&P
500 actually lost money during the first decade of the 2000s.
But investment in a broad emerging-market index produced
quite satisfactory returns. And investment in the BRIC
countries (Brazil, Russia, India, and China) produced quite
generous returns. Broad international diversification would
have been of enormous benefit to U.S. investors, even during
“the lost decade.”