covariance

Examples of covariance in the following topics:

• Making Risk Adjustments

  • The beta coefficient, expressed as a covariance, is the risk of a new project in relation to the risk of the market as a whole.
  • The beta of an investment is equal to the covariance between the rate of return of the investment, r(a), and that of the portfolio, r(p).

• Measuring and Protecting against Economic Exposure

  • Covariance measures the variation of the asset's price to the exchange rate while the variance shows the variation of the exchange rate.