04-09-2012, 02:41 PM
Variance-Covariance Matrix
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Covariance
Covariance measures the degree to which two variables change or vary together (i.e. co-vary).
On the one hand, the covariance of two variables is positive if they vary together in the same
direction relative to their expected values (i.e. if one variable moves above its expected
value, then the other variable also moves above its expected value). On the other hand, if
one variable tends to be above its expected value when the other is below its expected value,
then the covariance between the two variables is negative. If there is no linear dependency
between the two variables, then the covariance is 0.