The following table represents the estimated returns for two motor vehicle production brands - ABC and XYZ, in 3 industrial environments: Strong (50% probability), average (30% probability) and weak (20% probability).

Given the above joint probability function, the covariance between ABC and XYZ returns is closest to:

Correct Answer: 0.1442

The covariance is positive which means that the returns for the two brands show some co-movement in the same direction. (This would most likely be the case in real life because the companies are in the same industry and therefore, the systematic risks affecting the two are quite similar.)