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Consider two securities, A and B. Security A and B have a correlation coefficient of 0.65. Security A has standard deviation of 12, and security B has standard deviation of 25. Calculate the covariance between these two securities

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Answer:

195

Step-by-step explanation:

The relationship between the covariance (cov_AB), and the correlation coefficient (ρ_AB = 0.65), and the standard deviations (σ_A = 12 and σ_B = 25) for the securities A and B is :

[tex]cov_{A,B} = \rho_{A,B}*\sigma_A*\sigma_B[/tex]

Applying the given data:

[tex]cov_{A,B} = 0.65*12*25\\cov_{A,B} = 195[/tex]

The covariance between these two securities is 195.

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