Consider 2 stocks with return K1 and K2 given by
Scenario Probability Return k1 Return K2
w1 0.5 10% 7%
w2 0.5 12% 10%
Compute Var(k1), Var(k2), and Cov(k1, k2). Note Ki is the log returns.
The solution contains a detailed step-by-step procedure on how to compute the variance on a set of numbers, and the covariance between two set of numbers. Specific illustration is done using an example of a case on the returns (K1, K2) of 2 stocks as in the problem.