Final answer:
Diversification is most effective when portfolio stocks have negative correlations, as it reduces overall risk. While diversification doesn't guarantee economic success, it's a risk management strategy that helps in facing market volatility.
Step-by-step explanation:
Diversification works best when the stocks in the portfolio have negative correlations. This means that when one stock goes up, the others do not necessarily follow, which can help in reducing the overall risk of the portfolio. A diversified portfolio with stocks that have negative correlations may help in safeguarding against market volatility, as the performance of these stocks tends to offset one another.
However, it's important to note that a diversified portfolio does not ensure economic success, but it is a strategy aimed at managing and reducing risk. Many factors can influence economic success, including market conditions, economic cycles, and individual investment choices. Diversification is one tool that investors can use to spread risk across different assets and asset classes.