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| == Meaning of Correlation coefficient ==
| | A summary based on the credit record of an individual or a business, to represent their creditworthiness. |
| 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.
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| Correlation coefficients are widely used in portfolio diversification and hedging calculations.
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| Mathematically, correlation coefficient is the covariance divided by the product of the standard deviations.
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| Also known as the Coefficient of correlation.
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| == Significance of Correlation coefficients ==
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| A correlation coefficient of -1 means perfect negative correlation. The two variables always move in opposite directions by a perfectly predictable proportionate amount.
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| A correlation coefficient of 0 means that there is no correlation between the values of the two variables. The variables are statistically independent.
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| A correlation coefficient of +1 means perfect positive correlation. The two variables always move in the same direction by a perfectly predictable proportionate amount.
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| | Potential lenders, such as banks and credit card companies, use credit scores to evaluate the risk of lending money or of advancing other forms of credit, and to reduce the incidence or size of losses resulting from bad debts. |
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| == See also == | | == See also == |
| * [[Co-efficient]] | | * [[Credit]] |
| * [[Correlation]] | | * [[Creditworthiness]] |
| * [[Covariance]]
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| * [[Delta-normal method]]
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| * [[Mean reversion]]
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| * [[Random walk]]
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| * [[Rho]]
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| * [[Standard deviation]]
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| [[Category:Financial_risk_management]]
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Revision as of 14:19, 23 October 2012
A summary based on the credit record of an individual or a business, to represent their creditworthiness.
Potential lenders, such as banks and credit card companies, use credit scores to evaluate the risk of lending money or of advancing other forms of credit, and to reduce the incidence or size of losses resulting from bad debts.
See also
