The covariance between the returns on two stocks equals the correlation coefficient multiplied by the standard deviations of the two stocks.

Question

Quizplus · Accepted Answer

The covariance between two stocks is indeed equal to the correlation coefficient between their returns multiplied by the product of their individual standard deviations. This relationship is a fundamental concept in finance, indicating how two stocks move in relation to each other, adjusted for their individual volatility.

The Covariance Between the Returns on Two Stocks Equals the Correlation