Covariance(redirected from covariance method)
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A statistical measure of the degree to which random variables move together. A positive covariance implies that one variable is above (below) its mean value when the other variable is above (below) its mean value.
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The degree to which two variables are correlated. That is, covariance is the measure of how much two variables are related to one another. It is important in security analysis to determine how much or how little price movements in two companies or industries are connected.
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A statistical measure of the extent to which two variables move together. Covariance is used by financial analysts to determine the degree to which return on two securities is related. In general, a high covariance indicates similar movements and lack of diversification. Compare variance. See also risk.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.