25 From Appendix 3, imagine that you are a UK investor, construct an international portfolio of shares. Is the standard deviation of your international portfolio greater or less than an equivalent domestic portfolio?

Evaluate the significance of your results.

You will need a database of a history of the share prices of large companies (Perfect Analysis and Datastream are examples). The history of exchange rates with the British pound for the currencies quoted, e.g. $:£, euro:£, C$:£ and so on.

The return on a share for a month will be (1 þ R) 

(1 þ

e) – see appendix for more on the formula. You may then calculate the variance and covariance matrix of a portfolio of these returns month on month

(the portfolio calculator may help).