Use the table below to answer the following question(s).
Below is a spreadsheet for a situation in which a day trader wants to decide on investing $200 in one of the index funds. Answer the following questions using PHStat.
-The covariance between these two assets indicates that ________.
A)the overall risk increases
B)the overall risk reduces
C)the X index fund is riskier than the Y index fund
D)there is no risk involved

Question

Use the table below to answer the following question(s).
Below is a spreadsheet for a situation in which a day trader wants to decide on investing $200 in one of the index funds.  Answer the following questions using PHStat.
-The covariance between these two assets indicates that ________.
A)the overall risk increases 
B)the overall risk reduces 
C)the X index fund is riskier than the Y index fund 
D)there is no risk involved

Quizplus · Accepted Answer

The covariance between the X and Y index funds is positive, indicating that they tend to move in the same direction. Therefore, investing in only one of the funds would still result in exposure to the overall risk of the market. Investing in both funds would diversify the portfolio and reduce overall risk, but investing in only one fund would increase overall risk.

Use the Table Below to Answer the Following Question(s)