Please note the answer of this is for solution checking as part of exam preparation only and not intended to submit anything as my own work!>
If i know the following things about a UK firms investment project in the UK or Europe:
its current investment holds
70% of its total funds invested in its existing UK business with expected return of 20% and STD of 0.1.
Investment option 1:
30% of funds to new UK project with expected returns of 25% and Standard deviation of 0.09.
or
Investment 2:
30% of its total funds in a project in Europe with Expected returns of 25% and return variability of 0.11.
For the new project, its expected return's correlation with the return on its prevailing UK business is 0.80. In the case where the new project is chosen to be in Europe, its correlation with the return on the prevailing UK business is 0.02.
How would i compare these two investment portfolios and discuss any options from the examples with respect to international Diversification?