# covariance

• Nov 1st 2007, 02:57 PM
CaptainBlack
covariance
Quote:

Originally Posted by 0123
Sorry CaptainBlack. I need more help with the joint probability distribution. I am desperate. Seriously. (Crying)

My table data are
Stock A price 45 50 55 60
Stock B price 40 50 60 70

p(45, 40)=P(50,50)=P(55,60)=P(60,70)

All the other possible combinations to fill in the joint probability table are= 0. 003333

To get the covariance, how do I do in this case, with numbers? I hope you will help me out, Captain.Thank you so much . Seriously.

We know that

covar(X,Y) =E(XY) - E(X)E(Y)

so we need only evaluate these expaectations.

The probabilities p(45,40), .. are derived from the requirement that all the
probabilities sum to 1.

The remaing calcs are shown in the attached image of the spreadsheet.

RonL
• Nov 3rd 2007, 02:39 AM
0123
Thank you CaptainBlack. My problem is the result on the book is different. It says covariance= 59.17

But according to the calculations of excel
E(X*Y)=2946.66

and E(X)=53 and E(Y)= 55

So 2946.66- 53*55= 31.66:(
• Nov 3rd 2007, 02:45 AM
CaptainBlack
Quote:

Originally Posted by 0123
Thank you CaptainBlack. My problem is the result on the book is different. It says covariance= 59.17

But according to the calculations of excel
E(X*Y)=2946.66

and E(X)=53 and E(Y)= 55

So 2946.66- 53*55= 31.66:(

Check your arithmetic; E(X)=52.5, E(Y)=55, and I get 59.1667 for the covariance

RonL
• Nov 3rd 2007, 02:54 AM
0123
Quote:

Originally Posted by CaptainBlack
Check your arithmetic; E(X)=52.5, E(Y)=55, and I get 59.1667 for the covariance

RonL

Thank you SO MUCH.