The covariance of these two securities is -3.75%. The covariance of two securities is a measure of how much the returns of one security tend to vary with the returns of another.
In this case, we can calculate the covariance by taking the expected return of stock A (14%) multiplied by the probability of a normal economy (75%), then subtract the expected return of stock B (11%) multiplied by the probability of a normal economy (75%), then add the expected return of stock A (-21%) multiplied by the probability of a recession (25%), then subtract the expected return of stock B (5%) multiplied by the probability of a recession (25%).
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