28 January 2026
Currency overlays and the illusion of independent indices
Two equity benchmarks can look loosely linked in local currency and tightly linked once you measure them the way the portfolio actually holds them.
A UK desk comparing the S&P 500 and the Nikkei 225 in local terms is not measuring the same object as the same desk after sterling translation. Currency can dampen or amplify co-movement depending on how hedges are applied.
State the denomination
Every Indexmesh Hub memorandum states whether returns are local, unhedged in GBP, or hedged to a stated base. Mixing denominations inside one matrix without labels is a common source of false comfort.
What to ask your analyst
- Are the series aligned to the currency treatment in our book?
- If we hedge Asia but not the US sleeve, how should the matrix reflect that?
- Does the stress window include a sterling shock that dominates the equity story?
Clear answers to those questions matter more than another decimal place on a coefficient.