Assume the US risk-free rate is 2%, and the US equity market index rate of return is 18% with standard deviation of 25%.  The Austrian equity market index rate of return is 20% with standard deviation of 32%, measured in US dollar.  The US and Austrian markets correlation is 0.64. 

Should a US investor diversify into Austria? 

What correlation between the two markets will make a US investor indifferent between diversifying or not diversifying into Austria?

Answer rating: 100% (QA)

To determine whether a US investor should diversify into Austria we need to calculate the expected return and risk of a portfolio that includes both U... View the full answer