Since security returns tend to have low correlations among countries,
A)investors can reduce risk more effectively if they diversify their portfolio holdings internationally rather than purely domestically.
B)investors who have a domestically diversified portfolio,with exposures across industry types will not gain much from diversifying abroad.
C)investors who diversify internationally will likely underperform investors who keep all their investments in one country.
D)none of the options

Question

Quizplus · Accepted Answer

Since security returns tend to have low correlations among countries, investors can reduce risk more effectively if they diversify their portfolio holdings internationally rather than purely domestically. This is because diversification across countries can reduce overall portfolio risk by managing exposure to country-specific risks. Therefore, option A is the best choice. Option B is incorrect because diversification across countries can still provide additional benefits even if an investor already has a domestically diversified portfolio. Option C is also incorrect as diversification across countries can lead to better risk-adjusted returns in the long run.

Since Security Returns Tend to Have Low Correlations Among Countries