Question 2 Part I- Diversification amp; trading strategies: (2+3 points) a) Suppose there are only 2 stocks x amp; y in the market and their...

Question 2 Part I- Diversification & trading strategies: (2+3 points)

a)    Suppose there are only 2 stocks x & y in the market and their returns are always related to one another by x=2y+0.05. Can an investor get any benefit from diversification in this market?

b)   Can you design a long-short trading strategy in this market that will give you risk free returns? Elucidate.