Benchmark and Correlation coefficient: Difference between pages

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1. ''Comparative measure.''
== Meaning of Correlation coefficient ==
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.  


A measure stated on a standardised basis, to enable comparison.
Correlation coefficients are widely used in portfolio diversification and hedging calculations.


For example, an effective annual rate.
Mathematically, correlation coefficient is the covariance divided by the product of the standard deviations.




2. ''Standards of performance - quantitative.''
Also known as the Coefficient of correlation.


A quantified standard of performance set by the market (such as stock market index) or by an institutional investor (such as an internally developed benchmark) against which investment performance, or other performance, can be managed and tracked.


== Significance of Correlation coefficients ==
A correlation coefficient of -1 means perfect negative correlation. The two variables always move in opposite directions by a perfectly predictable proportionate amount.


3. ''Standards of performance - qualitative.''
A correlation coefficient of 0 means that there is no correlation between the values of the two variables. The variables are statistically independent.


A standard of performance including less readily quantified measures, such as satisfaction.
A correlation coefficient of +1 means perfect positive correlation. The two variables always move in the same direction by a perfectly predictable proportionate amount.
 
 
4. ''Interest rates''.
 
An officially published rate of interest, from which a rate of interest payable or receivable is calculated.
 
For example, SONIA.
 
A related rate of interest payable might be SONIA + 1%.
 
 
5. ''Interest rates''.
 
More broadly, any rate of interest, from which another rate of interest payable or receivable is calculated.
 
 
6. ''Market price''.
 
A market price for a widely traded quality and quantity of a commodity, used as a reference price in a contract.
 
For example, the price per barrel of Brent crude oil.




== See also ==
== See also ==
* [[Alternate Base Rate]]
* [[Co-efficient]]
* [[Alternative reference rate]]
* [[Correlation]]
* [[Baseline]]
* [[Covariance]]
* [[Base rate]]
* [[Delta-normal method]]
* [[Benchmarking]]
* [[Mean reversion]]
* [[Benchmarks Regulation]]
* [[Random walk]]
* [[Climate benchmark]]
* [[Rho]]
* [[Commodity]]
* [[Standard deviation]]
* [[Credit Benchmark]]
* [[Effective annual rate]]
* [[€STR]]
* [[EURIBOR]]
* [[European Money Markets Institute]]
* [[Fallback]]
* [[Financial Stability Board]]
* [[Fixing]]
* [[Good practice]]
* [[LIBOR]]
* [[Price fixing]]
* [[Rate fixing]]
* [[Reference rate]]
* [[Refinitiv Benchmark Services (UK) Limited]]  (RBSL)
* [[Risk-free rates]]
* [[SONIA]]
* [[Spread to Treasury/ Governments]]
* [[Stakeholder]]
* [[Sterling]]
 
 
==Other links==
 
*[https://www.bankofengland.co.uk/markets/transition-to-sterling-risk-free-rates-from-libor/working-group-on-sterling-risk-free-reference-rates Working Group of Sterling Risk-Free Reference Rates - latest announcements & publications]
 
*[https://www.treasurers.org/hub/technical/practical-guide-libor A Practical Guide to LIBOR transition - Slaughter & May - Association of Corporate Treasurers]
 
*[[Media:Slaughter and May interest rate benchmarks.pdf| 2021: A Benchmark Odyssey, Practical Guidance for Treasurers on interest rate benchmarks, Slaughter and May]]
 
*[https://www.bankofengland.co.uk/markets/sonia-benchmark SONIA and other benchmarks]
 
*[https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2018/ARRC-Second-report ARRC: Second Report]


[[Category:The_business_context]]
[[Category:Financial_risk_management]]
[[Category:Compliance_and_audit]]
[[Category:Financial_products_and_markets]]

Revision as of 11:57, 17 August 2013

Meaning of Correlation coefficient

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.


Also known as the Coefficient of correlation.


Significance of Correlation coefficients

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.


See also

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