Do the Ukrainian Financial Markets Offer Portfolio Diversification for the Investors of G7 Countries?

This article investigates the integration between the Ukrainian financial market and G7 countries’ financial market markets and evaluates the benefits of portfolio diversification for the investors of G7 countries. By applying data from February 25, 2022, to December 31, 2024, the study calculates the correlation and dynamic connectedness of Ukraine’s equity and bond markets with the key stock indices from Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. The article’s findings suggest a weak to moderate correlation between Ukraine’s financial market and the markets of G7 countries. Therefore, a significant diversification potential for investors in G7 economies is available if they invest in Ukraine’s financial markets. Furthermore, portfolio optimisation strategies—equally-weighted portfolio (EWP), minimum variance portfolio (MVP), and maximum Sharpe portfolio (MSP)—demonstrate substantial risk-adjusted return improvements for investors diversifying into Ukrainian markets. However, the maximum Sharpe portfolio (MSP) provides the maximum benefit of diversification to G7 countries’ investors. These insights contribute to the literature on international portfolio diversification by showcasing Ukraine as an emerging investment destination with significant risk mitigation and return potential.