The covariance of Security X's returns and Security Y's returns is 10, and the variance of Security X's returns is 13% and the variance of Portfolio Y's returns is 17%. The correlation coefficient of the security X and Y returns is closest to: 1.0.67 2.1.83 3.0.25 4.0.05

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Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.