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International Portfolio Diversification - Essay Example

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International Portfolio Diversification Name University Introduction Diversification can be defined as a risk management technique that combines a wide variety of investments within a particular portfolio. The benefits of this diversification are as follows: it improves returns on investments, reduces risk on investments, and provides the optimal international portfolio…

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International Portfolio Diversification

They are followed by the investment strategies pursued by three international funds. In this part, the steps that they make to highlight lucrative investment have been mentioned. Improving Returns International stocks have more chances to bring higher returns in comparison with the local stocks. Investors are considerably aware of the fact that international stocks have a wide variety of characteristics. The wide variety of characteristics is capable to increase portfolio performance by diversifying across different international markets or different industries in different countries. In this regard, investing in the foreign or international markets offers difference when compared with the investment made in domestic or national market, and this difference can be comprehended in three ways. First, barriers levied by currency controls, taxation, or investor traditions may further so divide national markets that assets are priced in a national instead of an international landscape. Second, the co-variances among assets within a national market are much bigger than the co-variances among different markets. Third, exchange rates between different currencies depart from each other, exposing currency to international portfolios (Gupta & Donleavy, 2009, p. 163). ...
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