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Covariance vs. correlation

Covariance vs. correlation - Microsoft Excel Tutorial

From the course: Learning Excel: Data Analysis

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Covariance vs. correlation

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When we analyze business data, we're often trying to answer one simple question. Do two things tend to move together? For example, when advertising spend goes up, does revenue also go up? When delivery time increases, does customer satisfaction go down? When website visits increase, do orders increase too? These are relationship questions, and two common ways to measure relationships are covariance and correlation. Covariance tells us whether two sets of numbers tend to move in the same direction or in opposite directions. If covariance is positive, the two variables generally move together. If covariance is negative, the two variables generally move in opposite directions. If covariance is close to zero, there may be little or no consistent relationship. Covariance is useful because it tells us the direction of the relationship but covariance has one big limitation. The number itself is hard to interpret because covariance depends on the units of the data. If we compare advertising…

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