[CFA Level I] 24, Expected Returns Covariance and Correlation

This podcast is made by Ran Chen, who holds an EA license, Insurance and Securities licenses (Series 6, 63, 65), and the CFP® designation. He is passionate about opening access to high-quality exam preparation resources and helping learners prepare more effectively for professional certification exams. In this episode you will learn: • How joint probabilities across mutually exclusive economic states must sum to one when calculating expected asset returns. • The step-by-step procedure for calculating probability-weighted covariance between two asset returns. • How to derive and interpret the correlation coefficient within its bounded range of negative one to positive one. • Why a correlation coefficient of zero indicates no linear relationship but does not imply general independence. • The key distinction between state-space probability weighting and sample covariance calculations. This independent study lesson is designed to supplement your CFA Level I exam preparation. For additional study resources, practice questions, and interactive learning tools, visit https://open-exam-prep.com/practice/cfa-level1 or check out our channel at https://www.youtube.com/@Open-exam-prep . Sources checked: October 12, 2026 https://www.cfainstitute.org/programs/cfa-program/candidate-resources/level-i-exam https://www.cfainstitute.org/sites/default/files/2027levelitopicoutline_online.pdf