A statistical measure of the degree to which two variables (e.g., securities’ returns) move together is:

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Question: A statistical measure of the degree to which two variables (e.g., securities’ returns) move together is:

Option a: coefficient of variation. This statistic measures relative variability of a single variable, typically expressed as the ratio of the standard deviation to the mean. It does not describe how two variables co-move, so it does not address the relationship between two series.

Option b: standard deviation. This measures the dispersion of a single variable around its mean, not the joint movement between two variables. It tells you about how one variable varies, but not how two variables relate to each other.

Option c: covariance. Covariance directly quantifies the degree to which two variables move together: if one increases when the other increases, covariance is positive; if one increases while the other decreases, covariance is negative. It captures the joint variability of the pair, which is exactly what the question is asking about.

Option d: variance. Variance measures the dispersion of a single variable around its mean, similar to standard deviation, but for one variable only. It does not describe the relationship between two variables.

In summary, the concept that assesses how two variables move in relation to each other is covariance, as it measures their joint variability and directional co-movement. The other options describe variability for a single variable, not the inter-variable relationship.

A statistical measure of the degree to which two variables (e.g., securities’ returns) move together is:

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