Definition of Covariance:

  1. The property of a function of retaining its form when the variables are linearly transformed.

  2. Degree to which the value of a dependent variable and an associated independent variable moves in tandem. Positive covariance means they move together (vary directly), negative covariance means they move in opposite directions (vary inversely).

  3. Covariance measures the directional relationship between the returns on two assets. A positive covariance means that asset returns move together while a negative covariance means they move inversely. Covariance is calculated by analyzing at-return surprises (standard deviations from the expected return) or by multiplying the correlation between the two variables by the standard deviation of each variable.

  4. Covariance evaluates how the mean values of two variables move together. If stock A's return moves higher whenever stock B's return moves higher and the same relationship is found when each stock's return decreases, then these stocks are said to have positive covariance. In finance, covariances are calculated to help diversify security holdings.

  5. The mean value of the product of the deviations of two variates from their respective means.

How to use Covariance in a sentence?

  1. Statistically significant covariances among random intercepts, rates of change, and effects of depressed mood and delinquency variety are reported in the text only.
  2. The matrix formulation of the model produces an estimate that can be easily transformed into genetic covariance and correlations.
  3. When two stocks tend to move together, they are seen as having a positive covariance; when they move inversely, the covariance is negative.
  4. Risk and volatility can be reduced in a portfolio by pairing assets that have a negative covariance.
  5. In the past, I studied probability in school and today we were learning about covariance and how two variables change together.
  6. Covariance is a statistical tool that is used to determine the relationship between the movement of two asset prices.
  7. Sometimes there will be a lot of covariance on a new project and you will have to always be prepared to make adjustments.
  8. Covariance is a significant tool in modern portfolio theory used to ascertain what securities to put in a portfolio.
  9. Sometimes a certain project will have a lot of covariance and you must be able to adapt as new problems may arise.

Meaning of Covariance & Covariance Definition