Example of Covariance
Covariance is the measure of a degree to which returns on two risky assets that move together in tandem. A covariance is defined as positive when the asset returns move together. Negative covariance means that returns move in opposite directions. If to speak in more simple way, covariance is the concept of statistics and probability theory used to measure how much two random variables are going together in terms of changing. In this way, a situation when to a greater value of one variable there is also a corresponding greater value of another variable and same goes for their lesser variables describes a positive covariance.
In the healthcare financial management, the covariance may occur, for instance, in case of taking variables of turnover rate and the expenses on materials. This is expected to be a positive covariance as with the high turnover rate, the hospital may hire more young specialists without job experience. In this way, the increased use of materials is expected due to mistakes made by younger employees and the absence of developed strategies of frugal use of the mentioned materials. As for the negative covariance, variables to make a case for those might be the number of employee’s days off and the expenses on his or her medical insurance. The lack of rest and recreation is connected to increased rate of illnesses. In this way, if an employee is working too much, this employee will soon be in need to use medical …
