In your researches you discover that the covariance between the return achieved by company B over the last twenty years with the return on the market has been 0.04 and the covariance between the return achieved by company D with the return on the market over this period has been 0.2. Your client suggests that these results mean that it would be a good idea to invest in these two companies. 

Explain why the results might lead them to think this and assess whether that argument is justified using recent models developed in asset pricing theory?

Answer rating: 100% (QA)

Clients Thinking and Limitations of Covariance Clients Perspective Your client likely sees the posit... View the full answer