Question
Suppose that the index model for stock A and B is estimated from excess returns with the following result: R A = 3% + 7R
Suppose that the index model for stock A and B is estimated from excess returns with the following result:
R A = 3% + 7R M +eA
R B = -2% +1.2 R M + eB
σ M = 20% R-square A = 20 R-sqaure B = 12
What are teh covariance and correlation coefficient between the two stocks?
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Fundamentals of corporate finance
Authors: Robert Parrino, David S. Kidwell, Thomas W. Bates
2nd Edition
978-0470933268, 470933267, 470876441, 978-0470876442
