how to calculate the covariance between two market???

for setting capital market expectaions, including statistial tools, how to??/

cov(i,j) = beta(i)*beta(j)*variance(m)^2

Or ((Bi,1)(BJ,1)VarianceF1)) + ((Bi,2)(Bj,2)VarianceF2) + (Bi,1Bj,2Bi,2Bj,1)COV(F1,F2)

Yeah somehow I remembered that one for the Mock…

isn’t there a plus sign in the factor for the COV?


yeah it should be ((Bi,1)(BJ,1)VarianceF1)) + ((Bi,2)(Bj,2)VarianceF2) + [(Bi,1)(Bj,2)+(Bi,2)(Bj,1)]COV(F1,F2)

ooppps My bad

volkovv Wrote: ------------------------------------------------------- > yeah it should be > > ((Bi,1)(BJ,1)VarianceF1)) + > ((Bi,2)(Bj,2)VarianceF2) + > [(Bi,1)(Bj,2)+(Bi,2)(Bj,1)]COV(F1,F2) Do we need to know this formula or will cov(i,j) = beta(i)*beta(j)*variance(m)^2 this do?

My crystal ball is in the shop, someone else will have to answer for you.

There’s no LOS that says you will have to calculate this stuff.

there is no LOS, but there was question like that on the mock… volkovv, in this formula: cov(i,j) = beta(i)*beta(j)*variance(m)^2 we are calculating covariance between markets i & j, what is m?


overall market? we already have markets i & j

m=global market index

ok, thanks

yep, bips got it, m is global market index, think MSCI world, i and j could be returns for specific markets, think US and Japan also, i and j can be individual securities and m can be S&P 500