# What are correlation, covariance, and variance and relate them?

Covariance measures how two variables move together. It measures whether the two move in the same direction (a positive covariance) or in opposite directions (a negative covariance).

Correlation, in the finance and investment industries, is a statistic that measures the degree to which two securities move in relation to each other. Correlations are used in advanced portfolio management. Correlation is computed into what is known as the correlation coefficient, which has a value that must fall between -1 and 1.

Variance measures the variability (volatility) from an average or mean and volatility is a measure of risk, the variance statistic can help determine the risk an investor might take on when purchasing a specific security. A variance value of zero indicates that all values within a set of numbers are identical; all variances that are non-zero will be positive numbers.

A large variance indicates that numbers in the set are far from the mean and each other, while a small variance indicates the opposite.