Answer: The Covariance in the portfolio is -0.002
Explanation: Covariance is a significant tool in modern portfolio theory that is use to check risk and volatility, and to determine the relationship between the movement of assets returns in the portfolio.
CALCULATE COVARIANCE:
Correlation of sample = Covariance of sample ÷ (standard deviation of sampleA × standard deviation of sampleB)
Standard deviation A = 0.10
Standard deviation B = 0.04
Correlation = -0.5
Therefore;
Covariance = (0.04 × 0.10) × (-0.5) = -0.002
The Covariance is -0.002, which shows a negative since, thant means the two assets does not move in the same direction in the portfolio. Which means that, when asset A generate profit, asset B will generate loss to cancel the profit.
