Stock trend analysis algorithm-covariance, standard deviation, correlation coefficient

1. covariance is a statistical indicator used to measure the risk of a specific investment project in a portfolio relative to another investment project. The common point is the degree of return on the two projects in the portfolio, positive numbers indicate that one of the two projects has a higher return rate, and the other has a higher return rate, which changes in the same direction. If it is a negative number, one goes up and the other goes down, indicating that the return rate changes in the opposite direction. The larger the absolute value of covariance, the closer the two types of assets are. The smaller the absolute value, the more distant the two types of assets are.
2. Because the covariance is difficult to understand, the covariance is divided by the product of the standard deviation of the ROI of the two investment schemes, and a number with the same property as the covariance but not quantified is obtained. This number is the correlation coefficient. The formula is correlation coefficient = covariance/product of two project standard deviations.

Covariance

If the change trend of the two variables is the same, that is, if one of them is greater than its expected value and the other is greater than its expected value, the covariance between the two variables is a positive value.
If one of the two variables has the opposite trend, that is, one is greater than its expected value, and the other is less than its expected value, the covariance between the two variables is a negative value.

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Standard Deviation

Standard deviation (mean square error), also known as mean square error, is the mean of the distance from the mean of each data deviation. It is the deviation of the mean squared and the mean after the mean, represented by σ. Standard deviation is the arithmetic square root of variance. The standard deviation reflects the degree of discretization of a dataset. If the mean is the same, the standard deviation may not be the same.

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Correlation Coefficient

Measure the correlation between two random variables. The correlation coefficient value range is (-1, + 1 ). When the correlation coefficient is less than 0, it is called negative correlation; when it is greater than 0, it is called positive correlation; when it is equal to 0, it is called zero correlation.

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