Question: . Question: If the stocks are affected by the same industry trends, will their prices rise or fall together? E(A) = (2+ 3+5+4+6)/ 5 =

. Question: If the stocks are affected by the .

Question: If the stocks are affected by the same industry trends, will their prices rise or fall together? E(A) = (2+ 3+5+4+6)/ 5 = 20/5 = $4 E(B) = (20 + 10 + 14 + 5 + 5)/5 = 54/5 = $10.80 The covariance between A and B is defined as: Cov(A,B) = E((A - )(B B)) = (a; - )(b; B) n Cov(A,B) = (6x20 + 5x10+ 4x14 + 3x5 + 2*5)/5 4 x 10.80 = 50.2 - 43.2 = 7 Thus, A and B rise together since Cov(A, B) > 0. Assignment: calculate the correlation coefficient

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