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The international portfolio diversification is a function of correlation of equity markets across countries and the amount of correlation one market has with another, decides the scope of portfolio diversification. The market having high correlation with other markets generally has less scope for portfolio diversification. This research study investigated the existence of long run portfolio diversification benefits and opportunities of eight emerging stock markets in Asia and three top, benchmark index of Developed Markets. Models such as Factor Analysis, Principal Component (PC) and Maximum Likelihood (ML), Correlation Matrix and Graphical Price Movement Diagram were used for estimating the portfolio diversification opportunity and benefits. It is suggested from overseas portfolio diversification analysis that in Asian emerging stock markets (especially China, India, Malaysia, Taiwan, Indonesia and Thailand), there are good opportunities for overseas portfolio diversification and the investors may earn high return.

This paper evaluates the performance of carry trade strategies with implied Taylor rule interest rate differentials and compares the performance statistics of them over the naive carry trade strategy with actual interest rates. Carry trade, a currency speculation strategy, between high-interest rate and low-interest rate currencies generates high payoff on average and has a possibility of crash risk. I argue that the crash risk is reduced with implied Taylor rule interest rate differentials as a trading strategy in Yen and Franc trades for the whole sample period. During the recent financial crisis, the carry trading strategies with Taylor rule perform best in terms of mean returns, risk adjusted returns and downside risk.