Question

Year	Stock X	Stock Y
1	12.00%	-6.00%
2	-9.00%	16.00%
3	14.00%	8.00%
4	4.00%	8.00%

What is the covariance of the returns of Stock X with the returns of Stock Y?

Answer 1

Expected return for stock [X1+X2+X3+X4]/n

Stock X =[12+(-9)+14+4]/4

           = [12-9+14+4]/4

          = 21/4

           = 5.25%

Stock Y=[-6+16+8+8 ]/4

       = 26/4

    = 6.5%

Yea	Stock X :[X-expected return]	Stock Y :[Y-expected return]
1	[12-5.25=6.75	[-6-6.5]=-12.5
2	[-9-5.25] = -14.25	16-6.5=9.5
3	[14-5.25]=8.75	8-6.5=1.5
4	[4-5.25]= -1.25	8-6.5=1.5
Total	0	0

covariance =1/n-1 [(Sum of(X-ER)(Sum of (Y-ER)]

         =1/(4-1) [0*0]

       =1/3 [0]

         =0