An internationally diversified portfolio:
A) should result in a portfolio with a lower beta than a purely domestic portfolio.
B) has the same overall risk shape as a purely domestic portfolio.
C) is only about 12% as risky as the typical individual stock.
D) all of the above

Question

Quizplus · Accepted Answer

A) An internationally diversified portfolio should result in a portfolio with a lower beta than a purely domestic portfolio since it decreases the portfolio's sensitivity to domestic market movements.
B) The portfolio's overall risk shape may be similar to a purely domestic portfolio, but the diversification will lower the overall risk.
C) International diversification reduces unsystematic risk, meaning that it reduces the risk associated with individual stocks. Therefore, an internationally diversified portfolio is about 12% as risky as the typical individual stock.
Overall, all of the above statements are true, making Option D the correct answer.

An Internationally Diversified Portfolio