Question

The statistical tool used to measure a company risk is

A. mean B. mode

C. variable

D. covarience



​

Answer 1

The correct answer is OPTION D: Covariance

• Covariance is used in portfolio theory to determine which assets should be included in the portfolio.
• Covariance is a statistical measure of the directional relationship between two asset prices.
• In modern portfolio theory, this statistical approach is used to lower the overall risk of a portfolio.
• The tendency for assets to move in the same direction is referred to as positive covariance.
• The movement of negative covariance assets is the inverse of the movement of positive covariance assets.