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There are clear signs that trading patterns in European equities are increasingly becoming characterised by sector rather than country, according to a study by index providers European Benchmarks.
EuroBench, which produces its range of Insects pan-European sector indices, found in its annual revisions research that the correlation between different sectors of Insects diminished to 0.62 in 1999 from 0.85 in 1992. On the other hand, the correlation between different European country-based indices increased from 0.45 in 1992 to 0.6 now, the provider says.
“This confirms EuroBench theory that sectors defined on the basis of inter-correlation between shares become increasingly important at the expense of country indexes,” it says, adding that the time may be at hand when a European portfolio should be diversified by sector rather than country.

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