Lo–MacKinlay with two stocks

Two stocks have monthly lag-1 autocovariance matrix $\Gamma_1=\begin{pmatrix}a&b\\c&d\end{pmatrix}$ (entry $(i,j)=\operatorname{Cov}(r_{i,t-1},r_{j,t})$) and means $\mu_1,\mu_2$. (a) Use (4.6) to write $\mathbb E[\pi_t]$ for the relative-strength strategy in terms of $a,b,c,d,\mu_1,\mu_2$. (b) Evaluate with $a=d=0.0002$, $b=c=0.0003$, $\mu_1=1.5\%$, $\mu_2=0.5\%$. Interpret the sign. (c) Give an economic story in which $b,c>0$ (for example, a large-cap leader and a small-cap follower in the same sector).