Question

Year	A	B
1	10%	9%
2	-15%	16%
3	14%	-10%
4	13%	-12%
5	10%	21%
6	13%	11%
7	-12%	14%
8	10%	-10%
9	10%	-12%
10	-19%	21%

What is the correlation and covariance between these two assets?

Answer 1

	A	D = Return-Average Return	D^D		B	D = Return-Average Return	D^D		D(A)*D(B)
	0.1	0.066	0.004356		0.09	0.042	0.001764		0.002772
	-0.15	-0.184	0.033856		0.16	0.112	0.012544		-0.02061
	0.14	0.106	0.011236		-0.1	-0.148	0.021904		-0.01569
	0.13	0.096	0.009216		-0.12	-0.168	0.028224		-0.01613
	0.1	0.066	0.004356		0.21	0.162	0.026244		0.010692
	0.13	0.096	0.009216		0.11	0.062	0.003844		0.005952
	-0.12	-0.154	0.023716		0.14	0.092	0.008464		-0.01417
	0.1	0.066	0.004356		-0.1	-0.148	0.021904		-0.00977
	0.1	0.066	0.004356		-0.12	-0.168	0.028224		-0.01109
	-0.19	-0.224	0.050176		0.21	0.162	0.026244		-0.03629
Sum =	0.34		0.15484	Sum =	0.48		0.17936	Sum =	-0.10432
n = [Number of Observations]	10		10	n = [Number of Observations]	10		10	n = [Number of Observations]	10
Average Return = [Sum of Returns/n]	0.034	Variance = [Sum of D^D/n]	0.015484	Average Return = [Sum of Returns/n]	0.048	Variance = [Sum of D^D/n]	0.017936	Covariance = [Sum of D(A)*D(B)/n]	-0.01043
		Standard Deviation = [Square Root of Variance]	0.124435			Standard Deviation = [Square Root of Variance]	0.133925

Correlation = Covariance/(Std Dev of A*Std Dev of B) = -0.01043/(0.124435*0.133925) = -0.62586