# What is covariance with example?

## What is covariance with example?

Covariance is a measure of how much two random variables vary together. It’s similar to variance, but where variance tells you how a single variable varies, co variance tells you how two variables vary together.

**How do you calculate covariance examples?**

The covariance between the two stock returns is 0.665….Using our example of ABC and XYZ above, the covariance is calculated as:

- = [(1.1 – 1.30) x (3 – 3.74)] + [(1.7 – 1.30) x (4.2 – 3.74)] + [(2.1 – 1.30) x (4.9 – 3.74)] + …
- = [0.148] + [0.184] + [0.928] + [0.036] + [1.364]
- = 2.66 / (5 – 1)
- = 0.665.

### How do you calculate covariance from correlation?

The correlation coefficient is determined by dividing the covariance by the product of the two variables’ standard deviations. Standard deviation is a measure of the dispersion of data from its average.

**Which is the formula for the covariance of X and Y?**

Sample Covariance Formula Cov (x,y) = Σ ((xi – x) * (yi –) / (N – 1)

#### How to calculate the covariance of a sample?

Formulas for Covariance (Population and Sample) Population Covariance Formula. Cov(X,Y)= \\( \\frac{\\sum (x_{i}-\\overline{x})(y_{i}-\\overline{y})}{N}\\) Sample Covariance Formula. Cov(X,Y)= \\( \\frac{\\sum (x_{i}-\\overline{x})(y_{i}-\\overline{y})}{N-1}\\)

**Which is an example of a positive covariance?**

The outcome is positive which shows that the two stocks will move together in a positive direction or we can say that if ABC stock is booming than XYZ is also has a high return. The given table describes the rate of economic growth (xi) and the rate of return (yi) on the S&P 500.

## What do you need to know about covariance for stocks?

Key Takeaways 1 Covariance is a measure of the relationship between two asset’s returns. 2 Covariance can be used in many ways but the variables are commonly stock returns. 3 These formulas can predict performance relative to each other. More