Assume that stock market returns do not resemble a single-index structure. An investment fund analyzes 40 stocks in order to construct a mean-variance efficient portfolio constrained by 40 investments. They will need to calculate ____________ covariances.
A) 45
B) 780
C) 4,950
D) 10,000

Question

Quizplus · Accepted Answer

The number of unique covariances between n items can be calculated using the formula n(n-1)/2. For 40 stocks, this results in 40(39)/2 = 780 unique covariances.

Assume That Stock Market Returns Do Not Resemble a Single-Index