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IIBA CBDA Exam - Topic 1 Question 14 Discussion
Topic #: 1
A professor at a university has received a few complaints of the exams being too difficult. The professor is looking at exam performance results over the past 5 years to understand the normal tendency and outliers. Which chart should the professor use?
Covariance measures the directional relationship between the returns on two assets. A positive covariance means that asset returns move together while a negative covariance means they move inversely. Zero covariance indicates that the returns on the two assets move independently of each other. In the context of a scatter plot, zero covariance is represented by a plot where the points do not show any upward or downward trend but are rather scattered randomly on the graph with no discernible pattern.
Graph 4 displays such a pattern where there is no apparent relationship between the variables on the x and y axes, indicating that there is zero covariance between them.
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