Covariance Calculator

This calculator helps investors and analysts measure the covariance between two assets in a portfolio, which is crucial for risk management and diversification strategies.

Data Source and Methodology

All calculations are based on standard financial algorithms for covariance. For detailed information, refer to a third-party source. All calculations adhere strictly to provided formulas and data.

The Formula Explained

Cov(X, Y) = E[(X - E[X])(Y - E[Y])]

Glossary of Variables

  • Covariance (Cov): A measure of how two assets move together.
  • Asset 1 Returns: The percentage return of the first asset.
  • Asset 2 Returns: The percentage return of the second asset.
  • E[X]: Expected value of X (mean of asset 1 returns).
  • E[Y]: Expected value of Y (mean of asset 2 returns).

How It Works: A Step-by-Step Example

Consider two assets with returns over a period. By entering their returns in the calculator, the covariance is computed as the average of the products of their deviations from their respective means.

Frequently Asked Questions (FAQ)

What is covariance in finance?

Covariance is a measure of the relationship between two variables in a financial context. It indicates how two asset returns move together.

How do I calculate covariance?

Covariance is calculated by finding the average of the product of the deviations of each pair of data points in two datasets. Our calculator simplifies this process.

Why is covariance important?

Covariance is crucial in portfolio management as it helps in diversification by understanding how different assets correlate.

Can covariance be negative?

Yes, a negative covariance indicates that as one asset's return increases, the other's decreases, which can be useful for diversification.

Is a higher covariance better?

Not necessarily. Higher covariance indicates stronger correlation, but for diversification, low or negative covariance is often preferred.

Audit: Complete
Formula (LaTeX) + variables + units
This section shows the formulas used by the calculator engine, plus variable definitions and units.
Formula (extracted LaTeX)
\[','\]
','
Formula (extracted text)
Cov(X, Y) = E[(X - E[X])(Y - E[Y])]
Variables and units
  • No variables provided in audit spec.
Sources (authoritative):
  • a third-party reference site — a third-party reference site.com · Accessed 2026-01-19
    https://www.a third-party reference site.com/terms/p/portfolio-variance.asp
Changelog
Version: 0.1.0-draft
Last code update: 2026-01-19
0.1.0-draft · 2026-01-19
  • Initial audit spec draft generated from HTML extraction (review required).
  • Verify formulas match the calculator engine and convert any text-only formulas to LaTeX.
  • Confirm sources are authoritative and relevant to the calculator methodology.
Verified by Ugo Candido on 2026-01-19
Profile · LinkedIn
``` , ', svg: { fontCache: 'global' } };

Covariance Calculator

This calculator helps investors and analysts measure the covariance between two assets in a portfolio, which is crucial for risk management and diversification strategies.

Data Source and Methodology

All calculations are based on standard financial algorithms for covariance. For detailed information, refer to a third-party source. All calculations adhere strictly to provided formulas and data.

The Formula Explained

Cov(X, Y) = E[(X - E[X])(Y - E[Y])]

Glossary of Variables

  • Covariance (Cov): A measure of how two assets move together.
  • Asset 1 Returns: The percentage return of the first asset.
  • Asset 2 Returns: The percentage return of the second asset.
  • E[X]: Expected value of X (mean of asset 1 returns).
  • E[Y]: Expected value of Y (mean of asset 2 returns).

How It Works: A Step-by-Step Example

Consider two assets with returns over a period. By entering their returns in the calculator, the covariance is computed as the average of the products of their deviations from their respective means.

Frequently Asked Questions (FAQ)

What is covariance in finance?

Covariance is a measure of the relationship between two variables in a financial context. It indicates how two asset returns move together.

How do I calculate covariance?

Covariance is calculated by finding the average of the product of the deviations of each pair of data points in two datasets. Our calculator simplifies this process.

Why is covariance important?

Covariance is crucial in portfolio management as it helps in diversification by understanding how different assets correlate.

Can covariance be negative?

Yes, a negative covariance indicates that as one asset's return increases, the other's decreases, which can be useful for diversification.

Is a higher covariance better?

Not necessarily. Higher covariance indicates stronger correlation, but for diversification, low or negative covariance is often preferred.

Audit: Complete
Formula (LaTeX) + variables + units
This section shows the formulas used by the calculator engine, plus variable definitions and units.
Formula (extracted LaTeX)
\[','\]
','
Formula (extracted text)
Cov(X, Y) = E[(X - E[X])(Y - E[Y])]
Variables and units
  • No variables provided in audit spec.
Sources (authoritative):
  • a third-party reference site — a third-party reference site.com · Accessed 2026-01-19
    https://www.a third-party reference site.com/terms/p/portfolio-variance.asp
Changelog
Version: 0.1.0-draft
Last code update: 2026-01-19
0.1.0-draft · 2026-01-19
  • Initial audit spec draft generated from HTML extraction (review required).
  • Verify formulas match the calculator engine and convert any text-only formulas to LaTeX.
  • Confirm sources are authoritative and relevant to the calculator methodology.
Verified by Ugo Candido on 2026-01-19
Profile · LinkedIn
``` ]], displayMath: [['\\[','\\]']] }, svg: { fontCache: 'global' } };, svg: { fontCache: 'global' } };

Covariance Calculator

This calculator helps investors and analysts measure the covariance between two assets in a portfolio, which is crucial for risk management and diversification strategies.

Data Source and Methodology

All calculations are based on standard financial algorithms for covariance. For detailed information, refer to a third-party source. All calculations adhere strictly to provided formulas and data.

The Formula Explained

Cov(X, Y) = E[(X - E[X])(Y - E[Y])]

Glossary of Variables

  • Covariance (Cov): A measure of how two assets move together.
  • Asset 1 Returns: The percentage return of the first asset.
  • Asset 2 Returns: The percentage return of the second asset.
  • E[X]: Expected value of X (mean of asset 1 returns).
  • E[Y]: Expected value of Y (mean of asset 2 returns).

How It Works: A Step-by-Step Example

Consider two assets with returns over a period. By entering their returns in the calculator, the covariance is computed as the average of the products of their deviations from their respective means.

Frequently Asked Questions (FAQ)

What is covariance in finance?

Covariance is a measure of the relationship between two variables in a financial context. It indicates how two asset returns move together.

How do I calculate covariance?

Covariance is calculated by finding the average of the product of the deviations of each pair of data points in two datasets. Our calculator simplifies this process.

Why is covariance important?

Covariance is crucial in portfolio management as it helps in diversification by understanding how different assets correlate.

Can covariance be negative?

Yes, a negative covariance indicates that as one asset's return increases, the other's decreases, which can be useful for diversification.

Is a higher covariance better?

Not necessarily. Higher covariance indicates stronger correlation, but for diversification, low or negative covariance is often preferred.

Audit: Complete
Formula (LaTeX) + variables + units
This section shows the formulas used by the calculator engine, plus variable definitions and units.
Formula (extracted LaTeX)
\[','\]
','
Formula (extracted text)
Cov(X, Y) = E[(X - E[X])(Y - E[Y])]
Variables and units
  • No variables provided in audit spec.
Sources (authoritative):
  • a third-party reference site — a third-party reference site.com · Accessed 2026-01-19
    https://www.a third-party reference site.com/terms/p/portfolio-variance.asp
Changelog
Version: 0.1.0-draft
Last code update: 2026-01-19
0.1.0-draft · 2026-01-19
  • Initial audit spec draft generated from HTML extraction (review required).
  • Verify formulas match the calculator engine and convert any text-only formulas to LaTeX.
  • Confirm sources are authoritative and relevant to the calculator methodology.
Verified by Ugo Candido on 2026-01-19
Profile · LinkedIn
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