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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
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 0.09 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 |
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