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How to Calculate Covariance in Excel.
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How to Calculate Covariance in Excel.

Rosemary Njeri

Covariance measures the directional relationship between the return on two assets.

Covariance is used in portfolio theory to determine what assets to include in the portfolio.

Formula to calculate covariance in excel.

To calculate covariance in excel, we use the COVARIANCE Function.

There are two covariance functions;

i). COVARIANCE.P – Used to calculate population covariance.

ii). COVARIANCE.S – Used to calculate sample covariance.

Example:

Calculate the covariance of the following data set.

Day of the WeekHighest TemperatureLowest Temperature
Monday3712
Tuesday4015
Wednesday283
Thursday212
Friday3714
Saturday253
Sunday254

We begin by transferring the data onto an excel worksheet.

Calculate Covariance in Excel.

Fill the function argument sector and get your answer.

Calculate Covariance in Excel.

Therefore, your covariance is 35.75510204.

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