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Investments glossary

Covariance

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Quotes of the day:

Reality is the crutch for people who can\'t cope with drugs.

— Lily Tomlin

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.


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