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 Week | Highest Temperature | Lowest Temperature |

Monday | 37 | 12 |

Tuesday | 40 | 15 |

Wednesday | 28 | 3 |

Thursday | 21 | 2 |

Friday | 37 | 14 |

Saturday | 25 | 3 |

Sunday | 25 | 4 |

We begin by transferring the data onto an excel worksheet.

Fill the function argument sector and get your answer.

Therefore, your covariance is 35.75510204.