Expectation, variance, and covariance are fundamental concepts in probability theory and statistics. Let me define each of them along with their mathematical expressions.
1. Expectation:
Expectation (also known as expected value or average) is a measure of the central tendency of a random variable. It’s the weighted average of all possible values that a random variable can take, with weights being the probabilities of these values. Mathematically, the expectation of a discrete random variable X is denoted by E[X], and it’s given by:
E[X] = ∑ixiP(X = xi)
where xi are the possible values of X and P(X = xi) is the probability of the random variable taking the value xi. For a continuous random variable, we replace the summation with an integral:
E[X] = ∫ − ∞∞xf(x)dx
where f(x) is the probability density function (PDF) of the random variable X.
2. Variance:
Variance is a measure of dispersion or spread of a random variable, which indicates how much the values of the random variable are likely to differ from the expected value (mean). The variance of a random variable X is denoted by Var(X) or σX2 and is given by:
Var(X) = σX2 = E[(X − E[X])2] = E[X2] − (E[X])2
Thus, the variance is the expected value of the squared difference between the random variable and its mean.
3. Covariance:
Covariance is a measure of the joint variability of two random variables, which indicates how much the random variables are likely to change together. If the two random variables tend to increase together or decrease together, the covariance is positive. If one increases while the other decreases, the covariance is negative. The covariance of two random variables X and Y is denoted by Cov(X, Y) or σXY and is given by:
Cov(X, Y) = σXY = E[(X − E[X])(Y − E[Y])] = E[XY] − E[X]E[Y]
Covariance is closely related to correlation, which is a normalized version of covariance and ranges between -1 and 1. The correlation between two random variables X and Y is denoted by ρXY, and is given by:
$$\rho_{XY} = \frac{Cov(X, Y)}{\sqrt{Var(X) Var(Y)}} = \frac{\sigma_{XY}}{\sigma_X \sigma_Y}$$
Let me know if you need any further clarification or examples for any of these concepts!