As U.S. Stocks Hit Records, Do Mexican Equities Offer Diversification Opportunities

However, the Mexican peso has depreciated by about 50% against the U.S. dollar over the same period. When viewed in U.S. dollar terms, Mexico's stock market has returned almost the same as the major U.S. indices since 2000.

What's particularly noteworthy is the timing of these returns. From 2000 to 2012, Mexican stocks were the standout performers. Since 2012, U.S. stocks have taken the lead. This suggests that Mexican equities and U.S. stocks have delivered different returns at different times, making the Mexican market a potential portfolio diversifier.

The Case for Portfolio Diversification

The average daily correlation between Mexican and U.S. stocks over the past dozen years has averaged around 0.4, indicating a relatively weak correlation.

The sector composition of the Mexican stock market also differs significantly from that of the U.S. The Mexican market is heavily weighted toward consumer staples, materials, industrials and financials, while technology stocks make up over one-third of the S&P 500's value. This divergence in sector composition further explains the low correlation.

Given these factors, Mexican stocks could be an intriguing diversification opportunity for U.S. market portfolios.

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