Extending the series begun with When Russell 2000 is Low Vol, I thought I should take a look at Emerging Market stocks during periods of low relative volatility to the S&P 500. So you can replicate even without access to expensive data, let’s use the Vanguard Emerging Market Fund (VEIEX) and the Vanguard S&P 500 Fund (VFINX) as proxies. In the 12 month rolling regression, we see the same fairly steadily increasing beta and correlation of the Emerging Market stocks to the S&P 500 that we saw in the Russell 2000.
If I progress further on this research, I will have to work on an adaptive definition of “low vol”, but for the purpose of this post, I defined “low vol” as
Emerging 50 day std. dev – S&P 500 50 day sd > –0.075
For the Russell 2000, we used a more strict 0.0125. Although the numeric definition is different, the chart shows a very similar profile.