Answer:
The co-variance between these two securities is 0.0105
Step-by-step explanation:
We are given the following in the question:
Correlation coefficient = 0.35
[tex]Corr(A,B) = 0.35[/tex]
Standard deviation of Security A = 12%
[tex]\sigma_{A} = 0.12[/tex]
Standard deviation of Security B = 25%
[tex]\sigma_{B} = 0.25[/tex]
We have to find the co-variance between these two securities.
Formula:
[tex]Corr(A,B) =\dfrac{Cov(A,B)}{\sigma_A\times \sigma_B}[/tex]
Putting values, we get,
[tex]0.35 = \dfrac{Cov(A,B)}{0.12\times 0.25}\\\\Cov(A,B) = 0.35\times 0.12 \times 0.25=0.0105[/tex]
Thus, the co-variance between these two securities is 0.0105
