Question

Which of the following specifically measures the volatility of returns together with their correlation withthe returns of other securities? (A) Variance (B) Standard deviation (C) Coefficient of variation (D) Covariance

Answer 1

Covariance specifically measures the volatility of returns together with their correlation with the returns of other securities.

Explanation:

• Covariance is a measuring factor in probability and statistics.
• It is used to measure the variability of two combined variables.
• If the values of variables are greater than the value of covariance will also be greater.
• The formula of covariance is given below.
• Cov (x,y) =  ∑ (xi - x) ( yi - y) / N - 1
• Here;  
• x = mean of x
• y = mean of y
• N = number of data values.
• xi = data value of x
• Yi = data value of y