As part of an investment team at a large Canadian investment company, you are analyzing the returns of two stocks: TD bank and Sobey. You consider five possible scenarios for the stocks returns depending on how good the economy will be over the coming year. TD bank has a 0.9 correlation with the market portfolio. Sobey has a -0.5 correlation with the market portfolio. The market portfolio has a standard deviation of 10%. The risk free rate is equal to 4%.

Economy scenario	Probability	Return on TD bank stock	Return on Sobey stock
Boom	0.3	30%	8%
Above average	0.2	20%	8%
Average	0.2	10%	10%
Below average	0.2	0%	12%
Recession	0.1	-20%	15%

Assume you have a portfolio with $5,000 invested in TD bank and $15,000 invested in Sobey. Calculate the expected return and standard deviation of returns for this portfolio. How well does diversification work in this case? Comment on why or why not diversification works