Covariance calculation tricks, question, something, calculator

Jupiter

I'm working on one of the questions in the mock exam from last year and I realized that there's no way I can solve the covariance in the exam. The calculation is really easy but it's so time consuming. Does anyone know of any tricks to calculate it? There must something i'm missing here. Is it doable on the calculator?
This goes for variance, std dev and covariance - All time-consuming calculations.
According to the CFA website, we're supposed to answer each question about 90 seconds but these questions are taking me 4-5 minutes to calculate and to make sure I have the numbers right.
Thanks

waldziuchna

The calculations aren't too bad -- but there is ALOT of potential for keystroke errors. I will use the DATA and STAT function every single time I see a question like this and laugh knowing I will never make a mistake, and that it will take me about 25 seconds to compute.

JPSem

ur right theres not, only for 2 variable historical data. But thats good enough.

BA II + Can do:

1 variable with prob (std dev of pop, std dev of sample, mean & of course variances)
1 variable historical (std dev of pop, std dev of sample, mean & of course variances)

2 variable historical (std dev(s) of pop, std dev(s) of sample, mean(s), variance(s) and CORR, and thus covarience can be computed in 10 sec)

ishfaque

I don't think the calcs are too bad.

the STO and RCL functions are real time savers.

sdada

well using 2nd data, and 2nd stat I can calculate std dev of A, std dev ov B, and correlation coefficient within 30 seconds.

Given all that, you can compute covariance in another 20 sec with corr = covAB / sigA * sigB

Matori

If you get a "compute the covariance" or "compute the standard deviation" question where you just have a data set and you have to do all the different calculations, I would honestly suggest skipping the question and coming back to it later. The time saved will likely be better spent elsewhere, even if it means guessing on that one.

And I suggest doing that even if you know how to do it. The only exception is if there is some trick you can see to solve the question quickly, or there are only a *very* few data points.

kamara5

@KillaBeez -- Just a heads up sX and sY are SAMPLE standard deviations, the next one down from sX is σX thats population std deviation for X, and after sY is σY std deviation for Y.

I know on the mock exam afternoon Q 119 I did it in 30 sec or less, but it implicitly states SAMPLE variance so i squared sX instead of σX as I normally would. Whats the correct move if your not told sample or population?

disiz64

Try using historical data in Portfolio Mgmt Pg 117-118 -Schweser. Enter the returns for both stocks in decimal, in other words, they way they have it listed.

Remember switch 2nd stat to LIN for 2 variables

You will get the Std Deviations (Calculator Sx for Stock A and Sy for Stock B), and r is the correlation coefficient. Covariance you have to calculate. IT WORKS!!

2nd Data
2nd Clr Work

2004 : X01:+.10 enter
Y01: +.20 enter

and so forth...once your done entering data

2nd stat 2nd set until you see LIN and press arrow done until you see the info you need!

Please post instructions for 2 variable probabilities if anyone can figure it out.

Also, does anyone know if this equates to Portfolio std dev and Portfolio Variance? Or do we need to still put in the data in that nasty formula and square it?



from a couple days ago...

rgonzalez

to calc covariance and std deviation
2nd stat

enter each x and y value (if doing st dev just enter x values) hit enter and arrow down after each value. for 15% put in .15


after putting all data points in 2nd data
make sure its in LIN mode
arrow down till u get to Sx....Sx equals std deviation of all X inputs (if you are solving for only standard deviation u are done......but wait its gets better....Sx is sample std deviation...if you need population std dev hit arrow down one more and it looks like the std dev sign and x. that is population std dev.)

to calc covariance
when u see Sx hit STO 1
hit down arrow keys until u see Sy- which is std dev of Y values.....hit STO 2
hit down arrow keys until u see R- which is correlation coeffcient...hit STO 3
hit CE/C bottom left
hit RCL 1 X RCL 2 X RCL 3 =

practice with a problem u know...and u will see after practice u can calc this on the BA II + in 30 sec tops

HOLLLLAAAAAAAAAAA....EFF DOING CALCS by hand!!!!!!

mnieman

sorry...reverse that hit 2nd data first.....then 2nd STAT