The covariance between two random variables is equal to the ______ between the return on security I and the return on security j.
A) arithmetic mean
B) median
C) correlation
D) variance

Question

Quizplus · Accepted Answer

The covariance between two random variables measures how they move together, but it does not give information about how strongly or weakly they are related. Correlation, on the other hand, measures the strength and direction of the linear relationship between two variables, and is therefore a better choice to describe the relationship between the return on security I and the return on security j.

The Covariance Between Two Random Variables Is Equal to the ______