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Math Help - covariance

  1. #1
    Grand Panjandrum
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    covariance

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

    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
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  2. #2
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    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
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  3. #3
    Grand Panjandrum
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    Quote Originally Posted by 0123 View Post
    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
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  4. #4
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    Quote Originally Posted by CaptainBlack View Post
    Check your arithmetic; E(X)=52.5, E(Y)=55, and I get 59.1667 for the covariance

    RonL
    Thank you SO MUCH.
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