Question

                                                Norvell                                                                 Mullen

        Annual                                                         Annual

Date            Close Price     Dividend        Return(%)   Close Price     Dividend        Return(%)               

                                   

           

12/31/2014	24.00			28.00
12/31/2015	30.25	0.92	29.88	32.65	0.86	19.68
12/31/2016	27.50	1.12	-5.39	30.35	0.98	-4.04
12/31/2017	32.50	1.32	22.98	40.20	1.10	36.08
12/31/2018	29.90	1.52	-3.32	43.70	1.22	11.74
12/31/2019	35.20	1.72	23.48	40.50	1.34	-4.26

                       

Estimated s_Norvell = 16.56%                            Estimated s_Mullen = 17.03%

1. Compute the covariance between the returns of Norvell stock and Mullen stock.

2. Now compute the correlation between the Norvell and Mullen stocks and indicate how this relates to the covariance in question 2.

Answer 1

Formulas Used:-

Covariance	=COVAR(B2:B6,C2:C6)
Correlation	=CORREL(B2:B6,C2:C6)

The relationship between the Covariance and co-relation is that if we multiply correlation with the standard deviations of securities than we can get the Covariance between securities.