Yes, but not nearly as well as a more dense ballast like lead. We are talking here about a fixed tank of water placed as low in the boat as possible and completely filled. An air bubble in the tank means that the some of the water is free to move to the low side and in this case stability can actually be worse than if the tank were left empty. If it is kept empty, the entire boat will float too high, reducing stability. So if your boat has a ballast tank, keep it *completely* filled while you are afloat. To answer the question in more detail, it needs to be broken down into two questions, one comparing water with lead ballast and another comparing water with no ballast.