You own a stock called Insurate, Inc. Your profit for the stock is a random variable(W) with mean1,000 and variance400. You would like to buy more stock and you are trying to decide between Insurate (Y) and Mutual Fund, Inc. (F). Both of these stocks have a mean of 1,000 and a variance of 400. Which stock should you choose given that Cov(W,Y)=380 and Cov(W,F)=-200?
Can you explain this question to me and how to solve for the answer?
The solution decides which stock to choose based on covariance.