A Division of Windham Capital Management, LLC

Covariance

The covariance accounts for the magnitude of the variability in the assets’ returns in conjunction with the direction and degree. The covariance of two assets is the standard deviations of the two assets multiplied by the correlation between the two assets.

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Combinations of assets with low covariance to other assets will result in portfolios with lower levels of portfolio risk.  Combinations of assets with high covariance to other assets will result in portfolios with higher levels of portfolio risk.


Category:Understanding the Software -> Risk Estimation

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