Question

The covariance of two securities is A. equal to the variance of one security divided by...

The covariance of two securities is

A. equal to the variance of one security divided by the variance of the second security.

B. zero when the securities are positively related.

C. expressed as a squared value.

D. limited to a range of 0 to +1.

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Answer #1

Hi,

Covariance conveys the measurement of returns of 2 securities.

If it is positive then securities move in same direction. If it is negative then securities move in opposite direction and with zero value of covariance there is no relation in movement of securities.

Covariance can have any real value..

Cavariance is calculated as

Hence it expressed as a squared value.

So option C is correct.

Thanks

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