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benefits of international diversification

You are a fixed income fund manager based in euroland. Expected return of the EUR bond market is 4.4% and risk 5%, expected hedged return of the UK bond market 5.5% and risk 5.5%. Correlation of the two markets is 0.7. Demonstrate the benefits of international diversification by investing 70% of your portfolio in EUR bonds, 30% in UK bonds.

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Demonstrate the benefits of international diversification by investing 70% of your portfolio in EUR bonds, 30% in UK bonds.

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