measure covariance and correlation

Example 3.2 Suppose you are an investor. Your portfolio primarily tracks the performance of the S&P 500 and you want to add the stock of ABC Corp. Before adding the stock to your portfolio, you want to assess the directional relationship between the stock and the S&P 500. You not want to increase the unsystematic risk of his portfolio. Thus, you are not interested in owning securities in the portfolio that tend to move in the same direction. You can calculate the covariance between the stock of ABC Corp. and S&P 500. The figures for both ABC Corp. stock and the S&P 500 are provided. The prices obtained are summarized in the table below: S&P 500 ABC Corp. 2013 1,692 68 2014 1,978 2015 1,884 110 2016 2,151 2017 2,519 154 102 112