Portfolio Management and Wealth Planning【Reading 22】
Which of the following arguments makes the case for international diversification? A)
| The presence of increased Sharpe ratios with international investing. |
| B)
| Correlations are said to have increased over time. |
| C)
| Corporations are becoming more global in their orientation. |
|
Higher Sharpe ratios imply a higher excess return per level of risk. If correlations have increased over time, then the risk reduction benefit of international diversification is curtailed. If corporations become more global, it would also imply higher correlations, thus diversifying across borders becomes a less effective method of decreasing portfolio risk. |