International diversification is investing in nations where their economic phases are not directly correlated with the home nation. The purpose of the international diversification is mainly to reduce risk. More specifically, it is to reduce systematic risk. Systematic risk is risk that cannot be lessened through local diversification. However this systematic risk in the home nation may not be systematic in another nation, therefore it is possible to reduce this risk. By investing in nations that are negatively correlated with the home nation you can hedge your investments. For instance, if one market is underperforming, the other market may be over performing during that time effectively counteracting your underperforming investment. By internationally diversifying, the efficient frontier will effectively be “pushed out”, thereby giving the greatest amount of returns for the level of risk taken.  International diversification sounds like it is much safer way to invest, so why doesn’t everyone diversify internationally? Well first off, it is getting much harder to find a nation that is truly not in phase with all the other economies. With our now global economy and speed of information it seems most countries stock markets are in correlation with each other, especially during bear markets. The integration among the stock markets worldwide are providing less and less benefits for diversifying internationally. This, along with other various barriers to diversification such as lack of liquidity, currency exchange rate risk, and less information available may make diversifying internationally more trouble than it is truly worth. However, there are still opportunities to diversify internationally and “push out” the efficient frontier, it just takes a more devoted investor willing to do the research and homework. The margins may be slimmer now but there are still margins out there in the global environment and a smart investor will find them.  Shapiro, Alan C., and Atulya Sarin. Foundations of Multinational Financial Management. Sixth ed. Hoboken, NJ: John Wiley & Sons Inc., 2009.