Comparing the Benefits of International Diversification Using Industrial Correlation and Non-Systematic Risk

Abstract

Roll (1992) stated that the ASEAN capital market is still attractive for international diversification in various industries. To test the benefits of this international diversification, I used the industrial correlation between stock exchanges index and MSCI, and non-systematic risk measurement from Goeztmann, et. al. (2005). Based on the calculations that took into account the problem of the local and USD exchange rates, this study found out the results of calculation between ASEAN countries compared to each other, and from the results of data analysis, I found the smallest consumption goods industry in the Philippines. These results are followed by almost all the mainstay of portfolios for the Philippines in every GICS industry. A different pattern can be demonstrated by the steepest reduction in non-systematic risk in Indonesia during the 2008 global financial crisis. If it is presented using the data of 2006-2009, then perhaps the sharpest reduction in non-systematic risk is the Philippines.