what is covariance 
covariance is a statistical tool that measures the directional relationship between the returns on two assets a positive covariance means asset returns move together while a negative covariance means they move inversely covariance is calculated by analyzing at return surprises standard deviations from the expected return or multiplying the correlation between the two random variables by the standard deviation of each variable paige mclaughlin investopediaunderstanding covariancecovariance evaluates how the mean values of two random variables move together for example if stock a s return moves higher whenever stock b s return moves higher and the same relationship is found when each stock s return decreases these stocks are said to have positive covariance in finance covariances are calculated to help diversify security holdings 