Cov

CFA Level I
#1

I know this question has probably been asked a number of times, but how do you use your BA II to calculate this?

The forumla i used to solve this was: r=COVab/SDa*SDb

then i used on the calculator: 2nd > Data > entered Stock A return under X-values and Stock B return under Y-Values

Then I calculated: r*Sx * Sy* to get the Covariance and Kept getting different numbers, anyone here can explain me what i did wrong and what i shouldve done? (other then suggesting i should do it by hand)

An analyst gathered the following data for Stock A and Stock B:

Time Period Stock A Returns Stock B Returns 1 10% 15% 2 6% 9% 3 8% 12%

What is the covariance for this portfolio?

A) 12. B) 3. C) 6.

#2

i get r=1;Sx=2;Sy=3…so1*2*3=6 ?

dunno what happened with your calculator…perhaps fatfinger mistake ?

#3

ohh ahah well ive been solving these problems by hand, it my 1st time using the calculator. I was under the impression that Sx and Sy were variances and i kept getting the sqr root of it… so Ox is the pop Sd and Sx is the sample Sd?

Also when do we use the 1-V function? not exactly sure what that is yet, tried googling it didnt find a legit answer

#4

yeah…the calculator is a bit archaic sometimes…any greek symbol is used to denote population statistic (sigma=std of population,myu=mean of population) while the alphabet is used for sample statistics (x-bar=mean,s=std)

#5

1-V means one-variable for one-variable statistics.

#6

When would you use 1-V?

#7

I think Eddiechen just answered our question

#8

For an example of 1-V :

http://epsstore.ti.com/OA_HTML/csksxvm.jsp?nSetId=90599

#9

Hi Gekko,

You would use 1-V for single-variable problems.

So I would use it for finding standard deviation/variance for certain probability problems (refer to reading 8 LOS L) or standard deviations of portfolios when you are weighting by market cap. There are probably a variety of other problems that you may find the 1-V useful.

This depends on how you feel about whether you understand a concept better if you did it manually or with a short-cut that you are comfortable using your calculator. It really just depends on how confident you feel with certain calculator functions and how strong you feel you are with certain topics.

Good luck.