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*Please explain answer* Correlation coefficients relating U.S. stock markets and foreign stock markets Tend to be...

*Please explain answer*

Correlation coefficients relating U.S. stock markets and foreign stock markets

  1. Tend to be negative
  2. Steadily diminish over time
  3. Are equal to beta coefficients relating U.S. and foreign markets
  4. Suggest possible diversification
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Answer #1

d) Suggest possible diversification

Correlation coefficient shows how 2 variables or assets move in relation to each other. Correlation between US stock markets and Foreign stock markets has generally been on the lower side, i.e, when US market takes a downturn, the foreign market shows higher growth opportunities. Thus, it possibly indicates a reasonable level of diversification as the losses incurred in one market can be compensated to some extent by the profits made in another market.

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