MSCI Emerging Markets Index correlation with CNX Nifty

MSCI Emerging Markets Index

Its a stock market index which takes into account 817 stocks across 21 emerging market economies. It covers approximately 85% of all the emerging market economies based on the free-float method.

So, yeah. Its one of the broadest indices out there on the emerging markets.

It comes in many flavors as far as the currency denomination is concerned. Two of the popular ones are the dollar denominated MSCI EM index and local currency denominated MSCI Emerging markets index. Here local currency refers to the individual currencies of the constituent countries.

For my article, I’ll be taking the local currency denominated MSCI EM index.

CNX Nifty

Its the benchmark large cap index of the Indian stock market. It takes into account the largest 50 stocks and covers almost 70% of the free-float market cap of all the stocks listed on the exchange.

Its also important for an investor/trader as most mutual funds measure performance (alpha) with respect to it. There are also a lot of derivative contracts worth hundreds of millions of dollars linked to it. So, the index assumes a larger importance even though its not a broad based one.

The Correlation

The Indian component of the MSCI Emerging markets index is pretty small actually – at around 6.4% (August 2012) but still it seems to have a high correlation with the EM index.

To measure the historical correlation –  I have taken the 300 day exponential moving average of the 20 period historical correlation of the MSCI Emerging Markets index with respect to the CNX Nifty. A correlation of over 0.7 is considered pretty good.

It turns out the historical correlation comes to around 0.71 which indicates a high degree of correlation.

Historical Correlation MSCI Emerging Markets








Technically as well, we can see a lot of patterns on both the charts to be pretty similar.

The image below is that of MSCI Emerging Markets Index (local currency)

MSCI EM Local NSE Nifty















The image above is that of CNX Nifty


Knowing the high correlation between these two indices can be pretty useful.

Important and sustainable trends usually seem to occur together on both the indices.

So, for example the break of an important support (such as the 5400-5500 support of the Nifty in August 2013) was not confirmed by a similar break in the MSCI EM index and as one can see, the market just retraced the move completely and now both the indices appear to be in synch again.


As the markets open up more and more to the outside world, they also seem to act in a more correlated fashion. What effects one part of the world no longer is confined to that region alone.

For now, most emerging markets appear to be in a synch with a few differences. There doesn’t seem to be as much correlation with the developed economies but as time passes, that gap might close up as well.


If you liked the article, please share it. If you have anything to say or ask, feel free to leave a comment in the comments section below.

Like our facebook page @ 

Sensex chart since 1979

Below are some interesting charts of the Sensex (Indian Stock Market Index) from 1979 to 2013 (August).

Note – All charts are on a semi-log scale

Sensex Since 1979


Sensex Chart Trendline



Sensex Chart Since 1979









Some interesting observations

1) All major bull markets are followed by either bear markets or sideways markets.

2) If a prior bull market lasts a year, then the subsequent bear or sideways market lasts a couple of years or so.

3) If the prior bull market is prolonged and lasts 4-5 years with the index multiplying multi fold (a Super cycle Bull Market), then it is always followed immediately by a severe bear market crash (a Super cycle Bear Market). The bear market crash is followed by a multi year sideways market (Super cycle sideways market).

4) Fundamentally, one can correlate this chart with another chart I posted. Bull markets historically are almost always born out of extreme pessimism, undervaluation (P/E of 10-12) and a general lack of interest in stocks by the public and the investment community in general.

5) Bull markets end in euphoric optimism, extreme overvaluation (P/E of 26 or more) and a lot of interest More »

4111211837_a3a6f7e255Are EMA Crossover signals profitable?

This post is going to be slightly different from my previous posts. Instead of continuing with the articles on mutual funds, I’ll be talking about an experiment in technical analysis (a form of market analysis) I had done today. It basically involves seeing if EMA crossover signals (a technical analysis indicator) are of any use at all?

Are EMA crossover signals profitable?

Introducting the Experiment

The following experiment involves backtesting and analysing the EMA crossovers seen on the S&P CNX Nifty (the Indian stock market index) over the past three years.

By doing this backtesting, I tried to answer a curious question I had a few days back – What would happen if an individual trades only on the basis of EMA crossover signals generated? Would that be profitable? More »