... variability of the market index and if β i, M< 1 then adding the security will decrease the variability of the market index. The intuition behind the single index model is as follows. The market ... of the market index portfolio. If β i, M=1then adding the security doesnot change the variability, σ2M, of the market index; if β i, M> 1 then adding the security will increase the variability ... σ2ε ,i σ2 i =β2 i, Mσ2Mσ2 i +σ2ε ,i σ2 i Then we can de&neR2 i =β2 i, Mσ2Mσ2 i =1−σ2ε ,i σ2 i as the proportion of the total variability of Ritthat is attributable to variability in the market index. Similarly,1...