Investment Enhancement - Essay Example

This will help business people have adequate international portfolio diversification. Moreover, shareholders yearning to diversify a precarious investment, for example, stocks in a developing market, via international diversification, would be more profitable in areas which are negatively correlated, as well (Markowitz, 1952). Nations with stock prices moving in a different direction are perceived to be negatively correlated, while states with stock prices moving in a similar direction are perceived to be positively correlated.

The principle of diversification stipulates that a portfolio comprising largely positively correlated benefits embrace the portfolio al an advanced risk than a negatively correlated stock prices portfolio. Lack of precise fortitude of stock market price progress keeps all portfolios at an advanced risk level than anticipated because of the existence of a diversifiable risk (Markowitz, 1952). This paper will look into the impact of international portfolio diversification on an investment portfolio, investigate alternative investment vehicles, and explain how the use of derivative securities can further enhance a portfolio’s performance. . Nonetheless, if a client would take about 30% of his money and allot it in international stock markets, the entire investment will not be dependent on how an economy or stock market is performing (Markowitz, 1952).

In turn, this creates a much larger mode of diversification. Studies conducted in developing countries highlight viability of establishing investment federations to meet the participants’ political needs. Results from this study indicate the supremacy of international diversification in an investment federation over individual country investment. Another study assesses the probable advantages of a Mauritian business person when diversifying his venture into a number of African equity markets.

In addition, the research looks at the gains that may result for non-African investor venturing in African markets. The result is that there is a low correlation in African stock markets. This can lessen the risk and increase earnings for both universal and Mauritian investors when they invest in chosen African nations. The advantages of international portfolio diversification incorporate many nations, even politically instable nations. Investor should invest in all countries regardless of political stability.

This is because investing in politically frail countries may produce profits that more than the anticipated risks (Markowitz, 1952). Thus, it can be concluded that international portfolio diversification gives profits and reduces risks. Question B There are a number of alternative investment vehicles. They may include hedge funds, private equity firms, venture capital firm, among others. Hedge Funds Hedge funds are investment vehicles that put together investors’ funds in a broad variety of investments.