A statistical measure of the relationship between two variables (e.g., financial ASSET prices), often used to determine the magnitude of CORRELATION. The covariance between two assets can be computed via: where xAj is an observation of asset A, xA is the MEAN of asset A, x Bj is an observation of asset B, xB is the mean of asset B, and n is the number of observations. See also CORRELATION COEFFICIENT.

More On This Topic

Link to This Definition
Did you find this definition of COVARIANCE helpful? You can share it by copying the code below and adding it to your blog or web page.
Written and fact checked by The Law Dictionary