WSJ reports that the correlation between US market and other developed markets is becoming weaker, suggesting exposure in foreign markets can achieve better diversification now.

Textbook theory suggests that investing abroad helps to diversify a portfolio because overseas stocks are influenced, at least in part, by local economic conditions and interest rates. Therefore, they shouldn't necessarily move the same way as U.S. stocks.

Correlation is measured on a scale of 1 to minus 1. When markets are moving in perfect unison, they have a correlation of "1" and when they move in exact opposite directions, it is "minus 1." (At "0" there is no relationship.)

During the two-year period that ended in February, correlation between U.S. and other developed markets was 0.63, according to ING Asset Management. That is a big decline from 2003 to 2005, when they practically moved in lockstep, at 0.93. (The figures are based on monthly movements in the Standard & Poor's 500-stock index and the Morgan Stanley Capital International EAFE indexes.)

So far this year U.S. markets have held up well. But foreign markets are doing even better. The Dow Jones World Index, excluding the U.S., is up 8.5% this year in dollar terms, compared with 3.9% for the S&P 500.