In general, it is reasonable to expect that holding a portfolio consisting of both international and domestic assets, rather than domestic stocks alone, will provide greater risk$-$reduction benefits due to which of the following factors?

The differing economic, regulatory, and political systems expose domestic and international securities to different, and potentially offsetting, sources and amounts of diversifiable and market risks. This can cause the securities to generate independent or offsetting patterns of returns.

The differing economic, regulatory, and political systems expose domestic and international securities to different, and potentially offsetting, sources and amounts of market risks. While the domestic and foreign companies share common sources of diversifiable risk, the differences in market risk can still cause their patterns of returns to differ sufficiently to offer small risk$-$reduction benefits.