Assume that there are two assets (A and B) and there are four possible future scenarios. The
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Question:
Assume that there are two assets (A and B) and there are four possible future scenarios. The four scenarios and their probabilities are shown in the following table. The last two columns show the returns on assets A and B in the four possible scenarios.
Scenario | Probability | RA | RB |
Boom | 0.3 | 0.15 | -0.02 |
Normal | 0.3 | 0.08 | -0.01 |
Recession | 0.3 | -0.05 | 0.03 |
Disaster | 0.1 | -0.20 | 0.05 |
What is the covariance and correlation between the two asset returns? Please show work.
Related Book For
An Introduction to Management Science Quantitative Approach to Decision Making
ISBN: 978-1337406529
15th edition
Authors: David R. Anderson, Dennis J. Sweeney, Thomas A. Williams, Jeffrey D. Camm, James J. Cochran
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