Domestic portfolio concentrates on a few opportunities, into which an investor would venture. With the increasing rate and scope of globalization on all fronts, more opportunities are coming up in developed countries. Investors are able to invest in ventures that are not available in their home countries, which give them an upper hand ahead of investors, who have domestic portfolios. This provides a platform for the smaller economies to identify financial opportunities that may not be available in their home countries. Global or international portfolio has a wider scope and a better mechanism to reduce any form of risks that investors might face. Global or international currencies are stronger than a domestic currency.
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Till today, MPT is one of the most important and influential theories in modern day finance. MPT quantifies the benefits of diversification. The overall risk in any portfolio is a combination of two types of risks: systematic and unsystematic. Systematic risk, also referred to as undiversifiable risk, is essentially the overall market risk which all stocks are exposed to and which cannot be mitigated through diversification. This degree of price movement which every individual stock experiences based on the overall market is measured by a metric called Beta.
It's essential for investors to have a diversified portfolio , which is a balanced collection of stocks and other investments across non-related industries. That's because those assets work together to reduce an investor's risk of permanent loss and their portfolio's overall volatility. The trade-off of diversification is an associated reduction in a portfolio's return potential. However, it's possible to have too much diversification.