You are a portfolio manager considering whether or not to allocate some of the money with which you are entrusted to the market index of UK stocks. Your assistant provides you with the following historical information: Returns Year Your Portfolio UK Index 1992 54% 1993 1994 24% -6 % 24% -6 % 50% 10% -10% 60% -20% 80 % 1995 1996 1997 54% 1. Derive and indicate clearly the necessary condition so that the addition of the UK index to your portfolio reduces its risk. 2. Based on this historical data could you receive higher returns for the same level of risk by allocating some of your wealth to the UK index? 3. Based on historical experience, would it be possible to reduce your portfolio's risk below its current level by investing something in the UK index? 4. What fraction of the variation in UK stocks can be explained by variation in your portfolio's returns? 5. Is this situation a violation of the CAPM? You are a portfolio manager considering whether or not to allocate some of the money with which you are entrusted to the market index of UK stocks. Your assistant provides you with the following historical information: Returns Year Your Portfolio UK Index 1992 54% 1993 1994 24% -6 % 24% -6 % 50% 10% -10% 60% -20% 80 % 1995 1996 1997 54% 1. Derive and indicate clearly the necessary condition so that the addition of the UK index to your portfolio reduces its risk. 2. Based on this historical data could you receive higher returns for the same level of risk by allocating some of your wealth to the UK index? 3. Based on historical experience, would it be possible to reduce your portfolio's risk below its current level by investing something in the UK index? 4. What fraction of the variation in UK stocks can be explained by variation in your portfolio's returns? 5. Is this situation a violation of the CAPM