Portfolio Diversification With NAFTA Equities

Abstract

The results of our analysis suggests that diversified investment in the Mexican stock market has provided significant diversification and returns enhancement benefits to U. S. investors and that Canadian stocks offer only occasional return/risk improvement over a U.S. equities portfolio.  When correlations among the three markets are considered, we see diversification opportunities in the longer periods of returns but also increasing convergence of the Mexican and Canadian markets with the U.S. stock market in recent years.  The implications of our findings are that, if 17 years of returns data are representative of future expectations, there are clear return/risk enhancing advantages to including Mexican stocks in U.S. portfolio.