Question:
Could you please provide a report well supported, in APA format, illustrated with examples about your conclusions in this case study:
Diversification in Stock Portfolios
Consider the following two, completely separate, economies. The expected return and volatility of all stocks in both economies is the same. In the first economy, all stocks move together. In good times all prices rise together and in bad times they all fall together. In the second economy, stocks returns are independent; one stock increasing in price has no effect on the prices of other stocks. Assuming you are risk averse and you could choose one of the two economies in which to invest, which one would you choose? Explain.
References: Corporate Finance The Core, Second Edition by Jonathan Berk and Peter DeMarzo.