Correlation coefficient: Difference between revisions
From ACT Wiki
Jump to navigationJump to search
imported>Administrator (CSV import) |
imported>Doug Williamson m (Spacing and indentation) |
||
| Line 1: | Line 1: | ||
The correlation coefficient is a relative measure of the correlation between two variables. It measures the degree to which their values are interdependent. In other words, the extent to which changes in the value of one of the variables are associated with changes in the value of the other variable. | #The correlation coefficient is a relative measure of the correlation between two variables. It measures the degree to which their values are interdependent. In other words, the extent to which changes in the value of one of the variables are associated with changes in the value of the other variable. | ||
#Correlation coefficients are widely used in portfolio diversification and hedging calculations. | |||
Correlation coefficients are widely used in portfolio diversification and hedging calculations. | #Mathematically, correlation coefficient is the covariance divided by the product of the standard deviations. | ||
#A correlation coefficient of -1 means perfect negative correlation. The two variables always move in opposite directions by a perfectly predictable proportionate amount. | |||
Mathematically, correlation coefficient is the covariance divided by the product of the standard deviations. | #A correlation coefficient of 0 means that there is no correlation between the values of the two variables. The variables are statistically independent. | ||
#A correlation coefficient of +1 means perfect positive correlation. The two variables always move in the same direction by a perfectly predictable proportionate amount. | |||
A correlation coefficient of -1 means perfect negative correlation. The two variables always move in opposite directions by a perfectly predictable proportionate amount. | #Also known as the Coefficient of correlation. | ||
A correlation coefficient of 0 means that there is no correlation between the values of the two variables. The variables are statistically independent. | |||
A correlation coefficient of +1 means perfect positive correlation. The two variables always move in the same direction by a perfectly predictable proportionate amount. | |||
Also known as the Coefficient of correlation. | |||
== See also == | == See also == | ||
| Line 22: | Line 16: | ||
* [[Rho]] | * [[Rho]] | ||
* [[Standard deviation]] | * [[Standard deviation]] | ||
Revision as of 11:02, 5 August 2013
- The correlation coefficient is a relative measure of the correlation between two variables. It measures the degree to which their values are interdependent. In other words, the extent to which changes in the value of one of the variables are associated with changes in the value of the other variable.
- Correlation coefficients are widely used in portfolio diversification and hedging calculations.
- Mathematically, correlation coefficient is the covariance divided by the product of the standard deviations.
- A correlation coefficient of -1 means perfect negative correlation. The two variables always move in opposite directions by a perfectly predictable proportionate amount.
- A correlation coefficient of 0 means that there is no correlation between the values of the two variables. The variables are statistically independent.
- A correlation coefficient of +1 means perfect positive correlation. The two variables always move in the same direction by a perfectly predictable proportionate amount.
- Also known as the Coefficient of correlation.
