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IIBA Exam CBDA Topic 2 Question 30 Discussion
Topic #: 2
A data scientist is analyzing a dataset to determine if there is a strong relationship between two variables. A measure of covariance is done. Which of the following graphs indicate Zero Covariance between variables?
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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