Expected Value, Variance, Covariance and Correlation

When you’re thinking about investing, there are three important things to look at: expected value, variance, and covariance of the stock or whatever you’re investing in. The expected value helps you figure out if it’s a good idea to buy (going long) or sell (going short) the investment. Variance tells you how much the investment’s value can go up and down – in other words, how risky it is. Covariance helps you understand how two different investments might move together or in opposite directions.