# Need help quick please on covariance

• Mar 15th 2009, 09:53 AM
little_nina
Need help quick please on covariance
If a guy wants to invest his money in A with a return of 12% and B with a return of 10% and u know the expected return of both is 11% how can you work out the covariance with no additional information? I have to present the answer tommorow and dont know how to do it! plllease can anyone help!!
• Mar 15th 2009, 10:11 AM
could you define covariance? I know I could look it up, but maybe if you explain what it is, it'll help with your understanding.

However, you can show that with a system of linear equations:

x (amount invested in A)
y (amount invested in B)

.12x + .10y = .11 (x+y)
.01x - .01y = 0
x - y = 0
x = y

so the man invested equal amounts in A and B.
Ask if you need more help, although I haven't yet taken a university stats.
• Mar 15th 2009, 12:13 PM
little_nina
well all iv got from my notes is the covariance of a and b is equal to the SUM OF pr(Ra-ERa)(Rb-ERb) Pr is the probability R is return and ER is expected return. I dont really know what the covariance is myselfi just need the covariance to work out another question.
• Mar 15th 2009, 12:17 PM
little_nina
o and i forgot to add That he is investing 50% in x and 50% in y