In a single-factor model, the return of a firm is driven by a common (systematic) factor and a firm-specific (idiosyncratic) factor. The covariance between the returns of any two firms is determined solely by their exposure to the common factor, assuming the firm-specific factors are uncorrelated with each other and with the common factor.

Assuming the variance of the common factor is normalized to 1, the covariance between the returns of Firm X and Firm Y is simply the product of their respective betas:

$\text{Covariance}(X, Y) = \beta_X \times \beta_Y$ $\text{Covariance}(X, Y) = 1.5 \times 0.9 = 1.350$