دراسات إقتصادية
Volume 25, Numéro 1, Pages 51-68
2025-06-30

Portfolio Optimization And International Diversification: A Markowitz-based Analysis



Authors : Chedad Mohamed . Ouakkal Noureddine .

Abstract

This article explores the effectiveness of international diversification in portfolio management based on Markowitz's theory. By analyzing the correlation between 13 global financial indices, the study identifies a strong integration among 9 of them, limiting the benefits of diversification. As a result, only 5 indices were selected for portfolio construction. Several portfolios were then developed: without constraints, with a risk-free asset, and under inequality constraints. The results show that international diversification reduces risk by at least 30%, while the inclusion of constraints restricts the benefits of diversification without eliminating them. The study also highlights the critical role of market correlation in optimizing portfolio performance.

Keywords

Portfolio optimization ; diversification ; Markowitz theory ; correlation ; risk-free asset ; efficient frontier.

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