Autocorrelation

Loading the player...

What is 'Autocorrelation'

Autocorrelation is a mathematical representation of the degree of similarity between a given time series and a lagged version of itself over successive time intervals. It is the same as calculating the correlation between two different time series, except that the same time series is used twice - once in its original form and once lagged one or more time periods.

The term can also be referred to as "lagged correlation" or "serial correlation".

BREAKING DOWN 'Autocorrelation'

When computed, the resulting number can range from +1 to -1. An autocorrelation of +1 represents perfect positive correlation (i.e. an increase seen in one time series will lead to a proportionate increase in the other time series), while a value of -1 represents perfect negative correlation (i.e. an increase seen in one time series results in a proportionate decrease in the other time series).

This value can be useful for computing for security analysis. For example, if you know a stock historically has a high positive autocorrelation value and you witnessed the stock making solid gains over the past several days, you might reasonably expect the movements over the upcoming several days (the leading time series) to match those of the lagging time series and to move upwards.

RELATED TERMS
  1. Durbin Watson Statistic

    A number that tests for autocorrelation in the residuals from ...
  2. Time Series

    A sequence of numerical data points in successive order, usually ...
  3. Serial Correlation

    The relationship between a given variable and itself over various ...
  4. Correlation

    In the world of finance, a statistical measure of how two securities ...
  5. Series 66

    An exam administered by the Financial Industry Regulatory Authority ...
  6. Series 24

    A securities license entitling the holder to supervise and manage ...
Related Articles
  1. Technical Indicators

    Explaining Autocorrelation

    Autocorrelation is the measure of an internal correlation with a given time series.
  2. Professionals

    The Money Market

    Series 62
  3. Professionals

    Trading Securities

    Series 62
  4. Professionals

    Equity Securities

    Series 62
  5. Professionals

    Government Securities

    Series 62
  6. Professionals

    Debt Securities

    Series 62
  7. Professionals

    Option Strategies

    Series 4
  8. Professionals

    Characteristics of Security Indexes

    CFA Level 1 - Characteristics of Security Indexes. Learn the characteristics behind security indexes. Examine three weighting schemes, including the formulas and biases for each.
  9. Professionals

    The Options Market Place

    Series 4
  10. Professionals

    Customer Accounts

    Series 62
RELATED FAQS
  1. If I have passed the Series 7 exam, do I need to write the 6 and 63 exams as well?

    Not always. According to the Financial Industry Regulatory Authority (FINRA), (formerly National Association of Securities ... Read Answer >>
  2. I completed the Series 6, do I have to complete the entire Series 7?

    After having written the Series 6 examination, there would be significant overlap with the Series 7 in areas such as mutual ... Read Answer >>
  3. Do financial advisors have to be licensed?

    Understand why all financial advisors have to be licensed, and identify the specific licenses you must obtain to carry out ... Read Answer >>
  4. Do I need to take the Series 6 examination after I have already successfully completed ...

    No. According to the Financial Industry Regulatory Authority (FINRA), (formerly the National Association of Securities Dealers), ... Read Answer >>
  5. I have passed the Series 63 and FINRA Series 7, but would like to become licensed ...

    Becoming an investment adviser representative requires more examination than just taking the FINRA Series 63 exam. See what ... Read Answer >>
  6. Q: Do I need to take the Series 6 examination after I have already successfully completed ...

    No. According to the National Association of Securities Dealers (NASD) you can convert your Series 7 license into a Series ... Read Answer >>
Hot Definitions
  1. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  5. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  6. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
Trading Center