# Given the returns and probabilities for the three possible states listed here, calculate the...

## Question:

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 0.13 and 0.16, respectively.

 Probability Return(A) Return(B) Good 0.35 0.30 0.50 OK 0.50 0.10 0.10 Poor 0.15 - 0.25 - 0.30

## Covariance:

Covariance refers to the statistical tool that measures the movement of prices of any two stocks. The link between the variation in the two idiosyncratic stocks is covariance. It shows how one stock corresponds with a movement in another stock.

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Computation of covariance between the returns of Stock A and Stock B.

 Probability (A) (B) dA(Return - Expected Return) dB(Return - Expected Return) P X...

Portfolio Weight, Return & Variance: Definition & Examples

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Chapter 12 / Lesson 1
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A portfolio can be designed in several different ways. It is important to understand the basics of a portfolio before building and managing one. In this lesson, we will go over the weight, return, and variance of a portfolio.