Question

1. Measures of Central Tendency and Association

Suppose you have two investment options to choose for your savings. The first one is a global stock index of the largest 500 companies in the world (x) and the other is a new alternative asset called Bitcoin (y). Find the covariance between the Stock Index and Bitcoin. Find the correlation. What do you observe? Find the Z-score for the global stock index in year 3. Find the Z-score for Bitcoin in year 2.

Figure 1: Stock Index vs. Bitcoin

Year	Stock Index	Bitcoin
1	100	25
2	105	5
3	115	5
4	105	40
5	125	25

Answer 1

In Co-variance table:

The Co-Variance is -15 between Stock and Bitcoin. Where Co-Variance tells about relationship.

when Co-Variance is negative it's means negative relationship between Stock and Bitcoin.

But doesn't tells about how much relationship where we need correlation.

In Correlation table:

Value is -0.125 where negative means negative relationship and value tells how much. So that is low correlation.

Z score Formula is:

Z = (X-average)/standard deviation

First, we need to calculate the mean and standard deviation for group.

where X is the value of data.