Calculating the covariance between the returns of two stocks
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Portfolios with more than one asset: Given the returns and probabilities for the three possible states listed here, calculate the covariance between the returns of Stock A and Stock B. For convenience, assume that the expected returns of Stock A and Stock B are 11.75 percent and 18 percent, respectively.
Probability Return A Return B
Good 0.35 0.3 0.5
Ok 0.5 0.1 0.1
Poor 0.15 -0.25 -0.3
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Solution Summary
Solution describes the steps to calculate the covariance between the returns of two given stocks.
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Please refer attached file for better clarity of tables and missing formulas.
Probability Return(A) Deviation (A) Return(B) Deviation (B) ...
Education
- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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