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International diversification - Essay Example

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International diversification

The United States and the two European countries i.e. Germany and Poland. If we suppose that an investor from the UK diversifies his portfolio of investments in the stock market of these three international countries. The differences in the statistics shown in the Fig1 propose that the level of risk and return would certainly vary from country to country that will ensure maximum returns for investors. International portfolio diversification is highly beneficial in a situation where the stock exchanges, economic condition and political environment of international countries are highly different from each other. Syriopoulos also says that “if returns from investments in different national stock markets are not perfectly correlated and the correlation structure is stable, there are potential gains from international portfolio diversification.” (2004, p1254) It is so because the diversification would not yield the desired results if the conditions and environment in international countries vary in the same manner as in domestic economy. If the international countries included in the portfolio have an economic, political and investment environment that differs from that of the domestic environs, the international portfolio diversification will reap significant benefits.The Capital Asset Pricing Model is an effective tool for portfolio management. Because of the model’s efficiency in pricing assets, it is considered to be useful in evaluating risk and return on various assets in a given portfolio. ...Show more

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In the paper “International diversification” the author seeks to evaluate several ways by which international diversification especially the countries favorable for investment growth. International diversification disperses the investment risk to a number of shares and securities in a portfolio.

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