A B C D E F G H I

8 Rates of Return Deviations from Average Returns Product of Deviations

9 Year Stock Fund Bond Fund Stock Fund Bond Fund
10 2006 30.17 5.08 20.17 0.08 1.53
11 2007 32.97 7.52 22.97 2.52 57.78
12 2008 21.04 -8.82 11.04 -13.82 -152.56
13 2009 -8.1 5.27 -18.10 0.27 -4.82
14 2010 -12.89 12.20 -22.89 7.20 -164.75
15 2011 -28.53 -7.79 -38.53 -12.79 493.00
16 2012 22.49 6.38 12.49 1.38 17.18
17 2013 12.58 12.40 2.58 7.40 19.05
18 2014 14.81 17.29 4.81 12.29 59.05
19 2015 15.5 0.51 5.50 -4.49 -24.70
20
21 Average 10.00 5.00 Covariance 30.08
22 Variance 360.85 64.07 Correlation 0.20
23 Standard Deviation 19.00 8.00
24
25
An Exercise
The following table present returns on various pairs of stocks in several periods. Draw scatter plots and find correlations

Table 1 Table 2 Table 3

Percentage Retruns Percentage Retruns Percentage Retruns
Stock 1 Stock 2 Stock 1 Stock 2 Stock 1 Stock 2
1 1 1 5 5 5
2 2 2 4 4 3
3 3 3 3 1 3
4 4 4 2 2 0
5 5 5 1 3 5

Perfect positive correlation perfect negative correlation positive correlation

1 -1 0.540062

Stock 2 Stock 2 Stock 2

6 6 6
5 5 5
4 4 4
3 3 3
2 2 2
1 1 1
0 0 0
0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5
Table 4
Percentage Retruns
Stock 1 Stock 2
5 4
4 3
1 1
2 0
3 5

positive correlation
0.686244

Stock 2
6
5
4
3
2
1
0
0 1 2 3 4 5 6