A stock has a correlation with the market of .45. The standard deviation of the market...
A stock has a correlation with the market of .45. The standard deviation of the market is 21%, and the standard deviation of the stock is 35%. a. What is the covariance between the market and the stock? (This part is related to Chapter 6, correlation.) b. Calculate the stock beta.
Homework Answers
Correlation of Market & Stock = Covariance between Market & Stock / (SD of Stock * SD of Market)
0.45 = Covariance / (0.35 * 0.21)
Covariance = 0.45 * 0.0735
Covariance = 0.033075
Covariance = 330.75(%)2 or 3.31%
Beta = Covariance / Variance of Market
= 0.033075 / (0.21)2
Beta = 0.75
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