Covariance measures the interrelationship between two securities in terms of:
A) both expected return and direction of return movement.
B) both size and direction of return movement.
C) the standard deviation of returns.
D) both expected return and size of return movements.
E) the correlations of returns.

Question

Quizplus · Accepted Answer

Covariance measures how two securities move together, capturing both the size (magnitude) and direction (positive or negative correlation) of their return movements, but not their expected returns or standard deviations individually.

Covariance Measures the Interrelationship Between Two Securities in Terms Of