Abstract

Narendra Bhana* The use of ex post inter-country correlation coefficients to predict gains from international portfolio diversification from the standpoint of a South African investort Introduction Table 1: Rates of return, standard deviations, and coeffi­ cient of correlations of equity investments for 18 selected In recent years several investigators such as Bhana (2), Barr countries during 1969-83 (1) and Van den Honert (11) have demonstrated that South Afri­ can investors would have derived substantial benefits by in­ Correlation (r) with Compound Standard South Africa cluding foreign securities into their portfolios. If the past results annual return deviation Country are considered to be indicative of future developments, then Industrial Gold mining (percentage) (percentage) shares shares these results suggest that future international diversification (1) (2) (3) (4) of portfolios is likely to be profitable and South African inves­ tors should take advantage of the benefits it offers. Australia 10,84 20,06 0,7055 0,0795 Austria 9,19 14,63 0,0346 0,1471 However, the composition of optimal international portfolios Canada 14,07 18,48 0,6718 0,1589 is based on ex post data. This approach allocates investment 20,80 29,15 0,1445 -0,3204 Denmark funds after reviewing the results of a period that has already France 7,24 21,24 0,3904 0,0021 Finland