There is one that exists and most people know about it, but choose to ignore it. It's international investing. Diversification - International investing provides a means of increased diversification . From our discussion on modern portfolio theory , portfolios101 readers know that correlations are very important in asset allocation.
Correlation is simply a measure of how strong a relationship exists between two variables.
In this case, a strong positive correlation would exist if U.S. stocks moved up or moved down at the same time and with the same magnitude. Fortunately, the correlation between U.S. equities and international equities is not that strong. Therefore, they do not move together precisely. This lower degree of correlation is why diversification is such an important benefit to investors. This can be seen in the following chart which shows three portfolios.