how to calculate the covariance between two market???

CFA Level III
#1

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

#2

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

#3

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

#4

Yeah somehow I remembered that one for the Mock…

#5

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

#6

No

#7

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)

#8

ooppps My bad

#9

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?

#10

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

#11

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

#12

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?

#13

m=market

#14

overall market? we already have markets i & j

#15

m=global market index

#16

ok, thanks

#17

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