Question 6 (this question has three parts (a), (b) & (c))

1. There are three securities (A, B and C) in the market. The covariance matrix and the standard deviations of the securities and the market are given in the following tables.

Covariance matrix

	A	B	C
B	-0.086	-	-
C	0.056	-0.0457	-
Market	0.023	-0.0781	0.0354

Standard deviation table

A	B	C	Market
32.25%	48.25%	25.24%	23.25%

1. Calculate the correlation coefficient between:

1. A and B.
2. B and C.
3. A and C.
4. A and the market.
5. B and the market.
6. C and the market.

(Marks 1 x 6 = 6)

2. Calculate and explain the market risk for A, B and C.

(Marks 1 x 3 = 3)

3. Identify and explain the key differences between covariance, correlation and beta in interpreting risk-return relationships.

(Mark 1)