How is covariance between two assets generally expressed?

Covariance between two assets is fundamentally a measure of how the returns on those assets move together. Specifically, it is calculated using the asset returns and their relationship with the market. In finance, the covariance can indeed be related to the betas of the individual assets.

Beta represents the sensitivity of an asset's returns relative to the returns of the market. By multiplying the betas of the two assets by the variance of the market, you capture how much the assets' returns are expected to move together given the market's movements. This relationship is a key concept under the Capital Asset Pricing Model (CAPM) and portfolio theory, where understanding how assets correlate is crucial for optimizing investments and risk management.

Thus, stating that covariance can be expressed as a product of their betas and the market variance accurately reflects the mathematical relationship that governs asset returns in relation to the market, making it the correct answer.

In contrast, the other options do not accurately capture the concept of covariance. For example, the variance of the market divided by the asset's standard deviation doesn't pertain to how two assets co-move. The difference between their returns doesn't measure the joint variability effectively, and averaging historical prices does not provide insights into their returns' variability relative to each