Horse Stock returns have exhibited a standard deviation of 0.57, whereas Mod T Stock returns have a standard deviation of 0.63. The correlation coefficient between the returns is 0.078042.

What is the covariance of the returns?

A) 0.028025

B) 0.217327

C) 0.3591007

D) 0.993094

Question

Dulce Kennedy

Business

14 August, 08:59

Horse Stock returns have exhibited a standard deviation of 0.57, whereas Mod T Stock returns have a standard deviation of 0.63. The correlation coefficient between the returns is 0.078042.

What is the covariance of the returns?

A) 0.028025

B) 0.217327

C) 0.3591007

D) 0.993094

+1

Answers (1)

Know the Answer?

Gordon Flowers · Answer 1

Answer: A) 0.028025

Explanation:

Covariance measures thw relationship between 2 random variables by measuring the variations of two variables from their expected value.

When calculating covariance we use the following formula,

Cov (R1, R2) = p12*σ1*σ2

Where

p12 is the correlation coefficient

σ1 is the standard deviation of Variable 1

σ2 is the standard deviation of Variable 2.

Calculating then we have,

Cov (hs, mt) = 0.078042 * 0.57 * 0.63

Cov (hs, mt) = 0.0280248822

Cov (hs, mt) = 0.028025

The covariance of the returns is 0.028025.

Horse Stock returns have exhibited a standard deviation of 0.57, whereas Mod T Stock returns have a standard deviation of 0.63. The correlation coefficient between the returns is 0.078042.What is the covariance of the returns?A) 0.028025B) 0.217327C) 0.3591007D) 0.993094

Horse Stock returns have exhibited a standard deviation of 0.57, whereas Mod T Stock returns have a standard deviation of 0.63. The correlation coefficient between the returns is 0.078042.

What is the covariance of the returns?

A) 0.028025

B) 0.217327

C) 0.3591007

D) 0.993094