It’s been a rough year for emerging markets. Stocks, bonds, and currencies in these countries have generally taken a hit in 2018. Not surprisingly, the US dollar has been strengthening.

The lesson, once again, is that investing in emerging markets requires monitoring the greenback’s trend. Although foreign exchange may not resonate as a relevant risk factor for some investors, there’s a strong case for making an exception when carving out a dedicated slot for emerging market assets in asset allocation.

Consider how the numbers stack up year to date. The US Dollar Index, which tracks the value of the United States dollar in terms of foreign currencies, is up around 3% this year through August 30. Meanwhile, ETFs targeting stocks and bonds in emerging markets — Vanguard FTSE Emerging Markets (VWO) and VanEck Vectors JP Morgan Emerging Markets Local Currency Bond (EMLC) – are down sharply so far in 2018. Note that the slide in VWO and EMLC accelerated as the US Dollar Index began to rally in the spring.

“A robust greenback is excellent for the US economy because it attracts capital into the economy. More capital will result in yet more growth,” Forbes noted recently. “But at the same time, the strong dollar is a nightmare for emerging markets because investors take their capital away and send it to the US.”

Let’s dig into this relationship a bit deeper for perspective, starting with a review of how daily returns correlate since 1995 for Vanguard Emerging Markets Stock (VEIEX) and the Trade Weighted U.S. Dollar Index: Broad. Not surprisingly, there’s a strong inverse link: the daily return correlation is -0.37 (Note: +1.0 is a perfect positive correlation, 0 is no correlation, and -1.0 marks a perfect negative correlation). The negative correlation is even deeper for one-year returns: -0.68.

Regressing the two sets of one-year performances reveals a relatively strong inverse connection: higher (lower) returns in the US dollar equate with lower (higher) changes in VEIEX.