A suggested approach to country selection in international portfolio diversification - Select countries on the basis of their segmentation scores.

Higher degrees of market segmentation may potentially involve greater diversification opportunities in international investment. The author suggests that segmentation be measured as the fraction of systematic risk of a country's national market in relation to a benchmark world portfolio what he calls the country's segmentation score. Portfolio managers can easily monitor the segmentation scores of local markets both over time and across countries to assess diversification opportunities. The author also suggests the use of adjusted systematic risk fractions, the systematic risk relative to market value share. If a country (market) contributes less to world systematic risk than to world market value, the fund allocation strategy should be changed in favor of this market.