# Relationship between correlation and covariance formula stats

### PreMBA Analytical Methods Conversely, the value of covariance lies between -∞ and +∞. and expressing the quantitative relationship between two variables in formula. Correlation is described as a measure in statistics, which determines the. In probability theory and statistics, the mathematical concepts of covariance and correlation are Then the variances and covariances can be placed in a covariance matrix, in which the (i,j) element is the covariance between the i th In this case the cross-covariance and cross-correlation are functions of the time difference. The difference in terms of covariance and correlation, when looking at the . back up if one were introducing basic matrix algebra for statistics).

### Covariance and correlation - Wikipedia

In it's most general form Variance is the effect of squaring Expectation in different ways. This is the Squaring Machine, it just squares the values passed into it. A simple random variable for a 3 color spinner Now we can create two nearly identical setups of machines, only we'll change the location of the the Squaring Machine.

Variance is the difference of squaring out Random Variable at different points when we calculate Expectation. Squaring before calculating Expectation and after calculating Expectation yield very different results! The difference between these results is the Variance. What is really interesting is the only time these answers are the same is if the Sampler only outputs the same value each time, which of course intuitively corresponds to the idea of there being no Variance. The greater the actual variation in the values coming from the Random Variable is the greater the different between the two values used to calculate Variance will be. At this point we have a very strong, and very general sense of how we can measure Variance that doesn't rely on any assumptions our intuition may have about the behavior of the Random Variable. Covariance - measuring the Variance between two variables Mathematically squaring something and multiplying something by itself are the same. Because of this we can rewrite our Variance equation as: But now we can ask the question "What if one of the Xs where another Random Variable?

If Variance is a measure of how a Random Variable varies with itself then Covariance is the measure of how one variable varies with another. Correlation - normalizing the Covariance Covariance is a great tool for describing the variance between two Random Variables.

But this new measure we have come up with is only really useful when talking about these variables in isolation. Correlation between different Random Variables produce by the same event sequence The only real difference between the 3 Random Variables is just a constant multiplied against their output, but we get very different Covariance between any pairs.

## Difference Between Covariance and Correlation

The problem is that we are no longer accounting for the Variance of each individual Random Variable. The way we can solve this is to add a normalizing term that takes this into account. P I think the important thing is that you can't easily compare covariances from two data sets that have different variances.

I also think it should be stated that the actual algebra necessary to understand the formulas, I would think, should be taught to most individuals before higher education no understanding of matrix algebra is needed, just simple algebra will suffice.

So, at first instead of completely ignoring the formula and speaking of it in some magical and heuristic types of analogies, lets just look at the formula and try to explain the individual components in small steps.

### Covariance - Definition, Formula, and Practical Example

The difference in terms of covariance and correlation, when looking at the formulas, should become clear. Whereas speaking in terms of analogies and heuristics I suspect would obsfucate two relatively simple concepts and their differences in many situations. At this point, I might introduce a simple example, to put a face on the elements and operations so to speak.

One would likely make these examples more specific e. One can then just take this process one operation at a time. Hence when an observation is further from the mean, this operation will be given a higher value. As gung points out in the comments, this is frequently called the cross product perhaps a useful example to bring back up if one were introducing basic matrix algebra for statistics.

Take note of what happens when multiplying, if two observations are both a large distance above the mean, the resulting observation will have an even larger positive value the same is true if both observations are a large distance below the mean, as multiplying two negatives equals a positive. Also note that if one observation is high above the mean and the other is well below the mean, the resulting value will be large in absolute terms and negative as a positive times a negative equals a negative number.

Finally note that when a value is very near the mean for either observation, multiplying the two values will result in a small number. Again we can just present this operation in a table. We can see all the seperate elements of what a covariance is, and how it is calculated come into play. Now, the covariance in and of itself does not tell us much it can, but it is needless at this point to go into any interesting examples without resorting to magically, undefined references to the audience.