Largest covariance allowed by two variances
Question
Random variables and have variances and respectively, while their means are (for ) and (for ). What is the greatest value can take?
Short answer
. By Cauchy–Schwarz (correlation lies in ), , with equality when is an increasing linear function of . The means are irrelevant.
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Open the worked solutionLessons behind this question
- Covariance and Correlation
- Value-at-Risk: Definition, Properties, and the Three Computation Methods
- Sample Spaces, Events, and the Probability Axioms
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