Covariance

Covariance is used to measure the strength of joint variability between two variables. It signifies the degree to which the two random variables are in tandem or move together. Covariance can be positive, negative or zero.
 

• If the two variables move together in the same direction i.e if one variable is increasing, and so is the other, then the variables are said to have positive covariance.
• Negative covariance indicates that the two variables move in opposite direction i.e when one variable is increasing, the other is decreasing.
• If covariance between two random variables is zero, they are called uncorrelated

The covariance for two random variables X and Y, each with sample size N, is defined as