11-Covariance.pptVIP

Covariance/Correlation Example 1. Compute the mean of the returns on Stock A. The means of the returns on Stocks B and C have been provided for you. State Probability Ret. Stock A Ret. Stock B Ret. Stock C Boom .20 .15 .40 –.10  Normal .60 .05 .10 .03 Bust .20 –.05 –.20 .15 ?A = ______ ?B = .10 ?C = .028 ?A = (.2 x .15) + (.6