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Example Question Using Covariance Formula
Question: The table below describes the rate of economic growth (xi) and the rate of return on the S&P 
500(y_(i)). Using the covariance formula, determine whether economic growth and S&P 500 returns have a positive or inverse relationship. Before you compute the covariance, calculate the mean of 
x and 
y.







Economic Growth %



(x_(i))







S&P 500 Returns %



(y_(i))






2.1
8


2.5
12


4.0
14


3.6
10





x=2.1,2.5,4.0, and 3.6 (economic growth)

y=8,12,14, and 10 (S&P 500 returns)
Find 
bar(x) and 
bar(y).

Example Question Using Covariance Formula\newlineQuestion: The table below describes the rate of economic growth (xi) and the rate of return on the S\&P 500(yi) 500\left(y_{i}\right) . Using the covariance formula, determine whether economic growth and S\&P 500500 returns have a positive or inverse relationship. Before you compute the covariance, calculate the mean of x x and y y .\newline\begin{tabular}{|l|l|}\newline\hline \begin{tabular}{l} \newlineEconomic Growth \% \\\newline(xi) \left(x_{i}\right) \newline\end{tabular} & \begin{tabular}{l} \newlineS\&P 500500 Returns \% \\\newline(yi) \left(y_{i}\right) \newline\end{tabular} \\\newline\hline 22.11 & 88 \\\newline\hline 22.55 & 1212 \\\newline\hline 44.00 & 1414 \\\newline\hline 33.66 & 1010 \\\newline\hline\newline\end{tabular}\newlinex=2.1,2.5,4.0 x=2.1,2.5,4.0 , and 33.66 (economic growth)\newliney=8,12,14 y=8,12,14 , and 1010 (S\&P 500500 returns)\newlineFind xˉ \bar{x} and yˉ \bar{y} .

Full solution

Q. Example Question Using Covariance Formula\newlineQuestion: The table below describes the rate of economic growth (xi) and the rate of return on the S\&P 500(yi) 500\left(y_{i}\right) . Using the covariance formula, determine whether economic growth and S\&P 500500 returns have a positive or inverse relationship. Before you compute the covariance, calculate the mean of x x and y y .\newline\begin{tabular}{|l|l|}\newline\hline \begin{tabular}{l} \newlineEconomic Growth \% \\\newline(xi) \left(x_{i}\right) \newline\end{tabular} & \begin{tabular}{l} \newlineS\&P 500500 Returns \% \\\newline(yi) \left(y_{i}\right) \newline\end{tabular} \\\newline\hline 22.11 & 88 \\\newline\hline 22.55 & 1212 \\\newline\hline 44.00 & 1414 \\\newline\hline 33.66 & 1010 \\\newline\hline\newline\end{tabular}\newlinex=2.1,2.5,4.0 x=2.1,2.5,4.0 , and 33.66 (economic growth)\newliney=8,12,14 y=8,12,14 , and 1010 (S\&P 500500 returns)\newlineFind xˉ \bar{x} and yˉ \bar{y} .
  1. Calculate mean of y: Now, let's calculate the mean of y, which we will denote as yˉ\bar{y}.yˉ=8+12+14+104\bar{y} = \frac{8 + 12 + 14 + 10}{4}Now, let's perform the calculation:yˉ=444\bar{y} = \frac{44}{4}yˉ=11\bar{y} = 11So, the mean S&P 500500 return is 1111\%.

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