What is covariance? How does it measure sensitivity? What is volatility?

Question

Accepted Answer

Covariance measures the relationship between two variables. It measures sensitivity by indicating the direction of the relationship.

Covariance is a statistical measure that shows how two variables are related to each other.
It measures the direction of the relationship between two variables.
A positive covariance indicates that the two variables move in the same direction.
A negative covariance indicates that the two variables move in opposite directions.
Volatility is a measure of the amount of uncertainty or risk associated with the changes in the value of a financial instrument or security.
It is often used to describe the risk of a particular investment or portfolio.
High volatility means that the value of the investment can change rapidly and unpredictably.
Low volatility means that the value of the investment is relatively stable and predictable.

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