Question

Given the correlation between stock E and F as 0.5, variance of Stock E 225. variance of Stock F 100, covariance between E and F is

a. 15

b. 75

c. 10

d. 25

Answer 1

Answer:

Correct Option is B.

Step-by-step explanation:

Given:

Correlation (E, F) = 0.5

V(E) = 225

V(F) = 100

Covariance (E, F) = ?

r = Covariance (E, F) /√V(E)*V(F)

Covariance (E, F) = r * √V(E)*V(F)

Covariance (E, F) = 0.5 * √225*100

Covariance (E, F) = 0.5 * √22500

Covariance (E, F) = 0.5 * 150

Covariance (E, F) = 75