Covariance of two markets

Is this a relevant topic or not? It’s in the Mock PM, but until recently I’d never come across it in my studies. I’ve been using Schweser mostly and they give you past papers till 2010 for AM. It is included in some of those past papers but they don’t cover it as they say it isn’t relevant. But given it’s come up in the Mock, this is confusing.

That question caught me off guard and slowed my momentum. I guess you could have worked it out, expanded the covariance formula into 4 covariance terms, eliminating 2 of them that equaled 0, and just be left with B1xB2xVar(Equity). Might have been level 1-2 stats.

Same here, caught me off guard and spent too much time figuring out what’s going on… seems more like level1/2 but then again, they had a question on calculating backwardation/contango in last year’s AM exam, which was from level 2 curriculum and they actually refer to level 2 curriculum in their answer…

Schweser does cover it in a blue box example and it’s in the mock so it’s fair game/

It took me some time to figure it out but it’s just the equity betas of 2 markets multiplied by each other and then times equity variance, then same for bond betas, and then take the cross product of the betas times covariance.

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