8) You are the investment strategist for a fund that currently invests 50% in stocks and 50% in bonds. However, you believe that the addition of asteroids would improve the portfolio by lowering risk and increasing return. You advocate a 20% allocation to asteroids, taking 10% from each of the other asset classes. Below, the following expected data has been developed to assist you:

			Correlation Matrix
Asset Class	Return	Standard Deviation	Stocks	Bonds	Asteroids
Stocks	0.18	0.21	1
Bonds	0.12	0.12	0.014	1
Asteroids	0.18	0.11	-0.700	-0.030	1

Note: The correlation matrix provides the correlations between asset classes. For example, the correlation between stocks and bonds based on the data provided is 0.014.

1. Explain the effect on portfolio risk that would result from the addition of asteroids to the portfolio. Include in your answer two reasons for any change you expect in portfolio risk. (Note: It is NOT necessary to compute expected risk for the portfolio.)
2. Your understanding of portfolio and capital market theory causes you to conclude that the data above is incorrect. Justify your skepticism.