11/2/2016

Covariance and Correlation

• Definition
• Computational Formula
• Interpretation
• Example
  • Let (X, Y) have the joint distribution defined by the following table:

  • 		X
    		0	1	2
    Y	0	1/6	1/3	1/12
    	1	2/9	1/6	0
    	2	1/36	0	0

  • Find the covariance of X and Y

• Properties of Covariance
  • Independence
  • Linear Transformations
• Correlation Coefficient
  • Find the value of the correlation coefficient for the example above
  • Bounds for rho

Please complete your reading of Chapter 7 for class on Friday.