In this problem, Stocks 1 and 2 are two stocks, not necessarily in the Stock_FX_Bond_2004_to_2005.csv data set. Suppose that Stock 1 has betas of 0.5, 0.4, and - 0.1 with respect to the three factors in the Fama-French model and a residual variance of 23.0. Suppose also that Stock 2 has betas of 0.6, 0.15, and 0.7 with respect to the three factors and a residual variance of 37.0. Regardless of your answer to Problem 9, when doing this problem, assume that the three factors do account for all covariances.
(a) Use the Fama-French model to estimate the variance of the excess return on Stock 1.
(b) Use the Fama-French model to estimate the variance of the excess return on Stock 2.
(c) Use the Fama-French model to estimate the covariance between the excess returns on Stock 1 and Stock 2.