In some respects, internationally diversified portfolios are the same in principle as a domestic portfolio because:
A) the investor is attempting to combine assets that are perfectly correlated.
B) investors are trying to reduce systematic risk.
C) investors are trying to reduce the total risk of the portfolio.
D) all of the above

Question

Quizplus · Accepted Answer

The objective of diversification, whether domestic or international, is to reduce the total risk of the portfolio by combining assets that are not perfectly correlated. Therefore, option C is the correct choice as it reflects the main objective of diversification. Option A is incorrect because combining perfectly correlated assets would not reduce risk. Option B is partially correct as reducing systematic risk is a key goal of diversification, but it is not the only objective.

In Some Respects, Internationally Diversified Portfolios Are the Same in Principle