International diversification

International diversification

The attempt to reduce risk by investing in more than one nation. By diversifying across nations whose economic cycles are not perfectly correlated, investors can typically reduce the variability of their returns.

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International diversification

Investment of one's portfolio in securities that are traded in various countries. This is done to reduce risk, often political risk. For example, if one country's government announces a larger than normal budget deficit, or the central bank raises interest rates, this may affect security prices in one country, but not necessarily in other countries that did not take equivalent steps. Likewise, if a whole industry fails in one country but thrives in another, investing in the same industry in both countries hedges one's risk. Some analysts argue that international diversification is less effective in an era of globalization, but other analysts dispute that.