Questions / Quant research, Portfolio & factor risk
Scale is not correlation
Cov(X,Y)=2. Define Z=3X. What is Cov(Z,Y)?
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Answer: 6 covariance units
- Cov(3X,Y)=3Cov(X,Y)=6.
Interview shortcut. Covariance is bilinear: Cov(3X, Y) = 3 Cov(X, Y).
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