Statistical Measures: Covariance, Correlation, and Regression Analysis
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Covariance
Covariance measures the directional relationship between the returns on two assets. A positive covariance means that asset returns move together, while a negative covariance means they move inversely.
Scatter Diagram
A scatter diagram is used to examine the relationship between both the axes (X and Y) with one variable. In the graph, if the variables are correlated, then the points drop along a curve or line. A scatter diagram or scatter plot gives an idea of the nature of the relationship. These relationships can include:
- Perfect positive correlation
- Perfect negative correlation
- High degree of positive correlation
- High degree of negative correlation
- Low degree of positive correlation
- Low degree of negative correlation
- No correlation

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