I am confused regarding the formula for Calculating covariance. I have noticed that in sums where we have to compute covariance between 2 securities, In ex-ante analysis – formula goes as Summation of (x-x (bar)) * (y-y(bar)) whole divided by no. of years.
However in sums where we have to calculate covariance of a security and market numerator is not divided by no. of years as done above.
Which one is right?
P.S. I took SFM class in 2021 (not as per latest recording)
There would be probability mentioned in the question, where we have not considered ‘N’ in the deominator.