Credit portal




What is the coefficient of correlation

what is the coefficient of correlation


Statistical measure of the degree to which the movements of two variables (stock /option /convertible prices or returns ) are related. See: Correlation coefficient .


The relationship between two variables during a period of time, especially one that shows a close match between the variables' movements. For example, all utility stocks tend to have a high degree of correlation because their share prices are influenced by the same forces. Conversely, gold stock price movements are not closely correlated with utility stock price movements because the two are influenced by very different factors. The concept of correlation is frequently used in portfolio analysis. See also serial correlation .


In investment terms, correlation is the extent to which the values of different types of investments move in tandem with one another in response to changing economic and market conditions.

Correlation is measured on a scale of - 1 to +1. Investments with a correlation of + 0.5 or more tend to rise and fall in value at the

same time. Investments with a negative correlation of - 0.5 to - 1 are more likely to gain or lose value in opposing cycles.


A former appraisal term, replaced by reconciliation.


What Does Correlation Mean?

In the investment world, correlation is a statistical measure of how two securities move in relation to each other. Correlations are used in advanced portfolio management.

Investopedia explains Correlation

Correlation is expressed as the correlation coefficient, which ranges between -1 and +1. Perfect positive correlation (a correlation coefficient of +1) means that as one security moves up or down, the other security will move lockstep in the same direction. Perfect negative correlation means that when one security moves in one direction, the other security will move by an equal amount in the opposite direction. If the correlation is 0, the movements of the securities are said to have no correlation; they are completely random. In real life, one rarely finds perfectly correlated securities but rather securities with degrees of correlation.

Category: Forex

Similar articles: