Impact of Global Integration on Portfolio Construction

Hard Asset Allocation Global Integration

Emily is a senior investment strategist at a global asset management firm. Her firm aims to enhance portfolio returns through a globally integrated investment strategy. Emily is analyzing the correlation of asset classes across various markets, paying particular attention to emerging market equities and developed market bonds. She aims to identify potential benefits and risks associated with global integration in her firm's asset allocation.

Considering Emily's analysis, which of the following statements best reflects the impact of global integration on portfolio construction?

Global integration reduces portfolio risk primarily by diversifying across asset classes with low correlations.

Global integration can sometimes increase systemic risk, despite the apparent benefits from diversification.

Global integration leads to consistently higher returns due to the efficient frontier being more favorable in a global context.

Hint

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