In: Statistics and Probability
You are trying to develop a strategy for investing in two different stocks. The anticipated annual return for a $1,000 investment in each stock under four different economic conditions has the following probability distribution:
Probability : 0.1 , 0.3, 0.3 , 0.3 .
Economic Condition: Recession, slow growth, moderate growth, fast growth.
Return} -Stock X: -100 , 0 , 80 , 150 .
- Stock Y: 50 , 150 , -20 , -100 .
a) Covariance of stock X and Y