Positive Covariances of Returns
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Why do most assets of the same type show positive variances of returns with each other? Would you expect positive covariance of returns between different types of assets such as return on treasury bills, General Electric common stock, and commercial real estate? Why or why not?
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This solution discusses positive variances of returns.
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First, variance is the expected value of the squared deviations of an asset's expected value. Thus, the variance of assets with one another is called the co-variance that measures the linear relationship ...
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