Posted in Finance, Accounting and Economics Terms, Total Reads: 734
It is the measurement of the strength of relationship between 2 random variables, i.e. by what measure do these random variable change together. Like correlation, there is a negative or positive covariance. It just signifies the strength or weakness of the relationship.
Cov(X, Y ) = E((X − μX)(Y − μY ))
Where μX is the Expected value of X and μY is the expected value of Y.