Suppose you have $30,000 to invest in two securities: Spot and Dot. After doing an extensive analysis of the economy and the two securities, you came up with the following forecasts:

State of Economy	Probability of Occurrence	Spot Expected Return	Dot Expected Return
Boom	15%	-8%	35%
Normal	60%	14%	20%
Bust	25%	18%	-10%

Expected Return (Spot) = 11.70%

Expected Return (Dot) = 14.75%

Standard Deviation (Spot) = 8.4445%

Standard Deviation (Dot) = 15.2049%

Expected Return (Portfolio) = 90.16% (Spot), and 9.84% (Dot)

Standard Deviation (Portfolio) = 6.63%

a. why does diversification reduce risk? answer the question with reference to why the standards deviation of the portfolio is lower than the standard deviation of the Spot share and Dot share that make up the portfolio?

NOTE: need at least 3 points to support it. Thanks!!