Reading the Portfolio Pair Outputs in the Covariance Workbook

Three portfolio examples in the workbook

The covariance workbook presents three two-asset portfolios: AB, CD, and EF. Each portfolio uses equal weights of 50% in each asset, making the examples directly comparable. The workbook then reports covariance, correlation, expected portfolio return, and portfolio standard deviation for each pair.

Portfolio AB

For portfolio AB, the workbook shows WA = 50% and WB = 50%. The reported pair statistics are CovAB = 0.0002 and CorrAB = 0.2599. The expected portfolio return is 12.75%, and the reported portfolio standard deviation is 50.14%. This pair represents a case with positive but comparatively modest reported co-movement relative to the other portfolio examples.

Portfolio CD

For portfolio CD, the workbook again uses equal weights, WC = 50% and WD = 50%. The reported values are CovCD = 0.00058 and CorrCD = 0.96. The expected return is 55.63%, and the reported standard deviation is 87.64%. This portfolio is the clearest example in the workbook of very strong positive reported co-movement.

Portfolio EF

For portfolio EF, the workbook assigns WE = 50% and WF = 50%. It reports CovEF = -0.00172 and CorrEF = -1.18, with an expected return of 4.25% and a portfolio standard deviation of 70.99%. In the workbook output, this is the only portfolio with negative reported co-movement statistics.

Comparison across the three pairs

• AB has the smallest positive reported correlation among the three listed portfolios.
• CD has the largest positive reported correlation, at 0.96.
• EF is the only pair with a negative reported covariance and correlation.
• All three pairs are presented with the same 50/50 weighting, so the workbook encourages comparison based on the relationship between the assets rather than differences in allocation structure.

Connection to the single-asset statistics

The workbook also lists expected returns and standard deviations for the individual stocks A through F. Those statistics help explain why portfolio results differ from pair to pair. For example, the individual standard deviations range from 1.29% for stock B to 9.55% for stock D, while expected returns range from 2.25% for B to 23.25% for A. The portfolio section builds on those stock-level measures by adding asset co-movement.