A relatively simple approach to diversification is to identify overseas projects that have performance levels that are highly correlated to domestic cash flows or project returns over time.

Question

Quizplus · Accepted Answer

Diversification aims to reduce the risk of a portfolio by investing in multiple assets that are not highly correlated with each other. Therefore, identifying overseas projects that have high correlation with domestic cash flows or project returns would not be a desirable approach to achieve diversification. A better approach would be to identify overseas projects that have low correlation or negative correlation with domestic cash flows or project returns.

A Relatively Simple Approach to Diversification Is to Identify Overseas