Florida Company (FC)and Minnesota Company (MC)are both service companies.Their stock returns for the past three years were: FC: -5%,15%,20%; MC: 8%,8%,20%.
Calculate the covariance between the returns of FC and MC.

Question

Quizplus · Accepted Answer

The covariance between the returns of FC and MC is 60. This is calculated by multiplying the covariance of the returns of FC and MC by the standard deviation of the returns of FC and the standard deviation of the returns of MC. The covariance of the returns of FC and MC is 20, and the standard deviation of the returns of FC is 10 and the standard deviation of the returns of MC is 10. Therefore, the covariance between the returns of FC and MC is 60.

Florida Company (FC)and Minnesota Company (MC)are Both Service Companies