How to use the COVAR function in Excel

In this article, we will learn How to use the COVAR function in Excel.

What is covariance between two datasets?

The measurement of directional relation between the two datasets can be compared using the covariance function. Covariance value for the given datasets can be positive, negative or zero. Positive covariance denoted that the two given datasets move in the same direction i.e. positive change in one dataset leads to the positive change in the other dataset whereas negative covariance denoted that the two datasets are move inversely or opposite direction i.e. positive change in one data set leads to the negative change in the other dataset. Zero covariance means that the two datasets do not depend on each other. If you want to know how much dependency in between the two relational datasets can be calculated using the correlation coefficient. Generally in statistics, calculating the covariance between the two datasets (X, Y) using the formula shown below.

Here X and Y are two different datasets with X and Ybe the respective mean for the datasets. And i denotes the individual values of the corresponding datasets. N is the number of values in the dataset (n must be equal for the both datasets). Learn about how to calculate the covariance using the COVAR function in excel.

COVAR function in Excel

COVAR function takes the two equal lenth arrays as arguments and returns the relational covariance between the two arrays.

COVAR function syntax:

=COVAR(array_1, array_2)

array_1 : First dataset values given as array.

array_2 : Second dataset values given as array.

Example :

All of these might be confusing to understand. Let's take an example to understand how to use theCOVAR function to get covariance value. Here we have sales of the two companies X and Y with year wise datas. Manager of a company suspects there is a relation between the two companies' sales values. So he ran the below formula on the dataset.

Use the formula:

= COVAR (C3:C9, D3:D9)

The formula returns -21.71 as covariance which means that the both company's sales are inversely directional. Knowing the Covariance formula for the given dataset we can calculate the covariance using the SUMPRODUCT function and AVERAGE function.

Use the formula :

=SUMPRODUCT((C3:C9-AVERAGE(C3:C9)),(D3:D9-AVERAGE(D3:D9)))/COUNT(D3:D9)

The SUMPRODUCT formula returns the same result as COVAR function. This formula doesn't operate, if any argument to the formula is non-numeric whereas COVAR function just ignores the value and returns the COVARIANCE for the remaining datasets.

Use the new covariance function in Excel for two different purposes.

Use COVARIANCE.P for population dataset.
Use COVARIANCE.S for sample dataset.

Here are some observational notes using the COVAR function as shown below.

Notes :

The function works with numbers only.
Both argument arrays must be the same size else the function returns #NA error.
If any argument in the COVAR function is non-numeric, the function ignores the value and returns the covariance for the remaining datasets.
The SUMPRODUCT function returns #VALUE! Error, if any argument to the sumproduct formula is non-numeric.
Operators like equals to ( = ), less than equal to ( <= ), greater than ( > ) or not equals to ( <> ) can be performed within a formula applied, with numbers only.

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