Covariance is different from the correlation coefficient, a measure of the strength of a correlative relationship. Covariance is an important tool in modern portfolio theory (MPT) for determining ...

Understanding Correlation And Covariance. And What It Means For Your Portfolio. Jan. 27, 2012 11:53 AM ET. The Better Investor's Blog. 16 Followers. Follow.

Uses of Covariance . Covariance can tell how the stocks move together, but to determine the strength of the relationship, look at their correlation.The correlation should, therefore, be used in ...

We model a covariance matrix in terms of its corresponding standard deviations and correlation matrix. We discuss two general modeling situations where this approach is useful: shrinkage estimation of ...