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What does covariance mean?

What does covariance mean?

Covariance is a measure of what degree the returns on two assets move in tandem. A positive covariance implies that returns on two assets move together in the same direction, while the opposite is true with negative covariance.

In a diversified portfolio, an investor ideally owns securities with negative covariance, so that returns may be smoothed out over time.

Keywords: assets, diversification, securities, covariance, Diversification Score®,