Benchmark For Correlation Values

AAA

DEFINITION of 'Benchmark For Correlation Values'

A benchmark or point of reference chosen by an investment fund to measure correlation values such as beta, the coefficient of correlation "r" and the coefficient of determination "r2." These correlation values indicate the degree to which the fund's performance is related to its market (using the benchmark as a proxy for the market). A high correlation to its benchmark is generally considered to be favorable for the fund if their investment thesis closely follows the benchmark.

INVESTOPEDIA EXPLAINS 'Benchmark For Correlation Values'

The relevant benchmark for correlation values depends on the fund's investing mandate. For example, a large-cap US equity fund would usually use the S&P 500 as its benchmark for correlation values, while a large-cap Canadian equity fund would use the S&P/TSX Composite index as its benchmark.

RELATED TERMS
  1. Correlation

    In the world of finance, a statistical measure of how two securities ...
  2. R-Squared

    A statistical measure that represents the percentage of a fund ...
  3. Correlation Coefficient

    A measure that determines the degree to which two variable's ...
  4. Benchmark

    A standard against which the performance of a security, mutual ...
  5. Beta

    A measure of the volatility, or systematic risk, of a security ...
  6. Marginable

    Definition of "marginable."
RELATED FAQS
  1. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  2. What are the requirements for being a Public Limited Company?

    The requirements for an entity to be considered a public limited company (PLC) include registration requirements, establishing ... Read Full Answer >>
  3. Is there a difference between financial spread betting and arbitrage?

    Financial spread betting is a type of speculation that involves a highly leveraged derivative product, whereas arbitrage ... Read Full Answer >>
  4. How do I place an order to buy or sell shares?

    It is easy to get started buying and selling stocks, especially with the advancements in online trading since the turn of ... Read Full Answer >>
  5. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>
  6. When does the holding period on a stock dividend start?

    The holding period on a stock dividend typically begins the day after it is purchased. Understanding the holding period is ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Beta: Know The Risk

    Beta says something about price risk, but how much does it say about fundamental risk factors? Find out here.
  2. Investing Basics

    Calculating Beta: Portfolio Math For The Average Investor

    Beta is a useful tool for calculating risk, but the formulas provided online aren't specific to you. Learn how to make your own.
  3. Investing Basics

    Beta: Gauging Price Fluctuations

    Learn how to properly use this measure that can help you meet your criteria for risk.
  4. Mutual Funds & ETFs

    5 Ways To Measure Mutual Fund Risk

    These statistical measurements highlight how to mitigate risk and increase rewards.
  5. Options & Futures

    Bettering Your Portfolio With Alpha And Beta

    Increase your returns by creating the right balance of both these risk measures.
  6. Investing

    Go Green with a Investment in Green Bonds

    If you want to invest in a socially responsible way, green bonds may be for you. And as the market grows retail investment opportunities will grow too.
  7. Investing Basics

    Got Dividends? Here's How to Reinvest Them

    Reinvesting dividends is almost always a good idea if you intend to hold your shares for the long term, and there are several ways to do it.
  8. Fundamental Analysis

    Explaining Price Targets

    A price target is what an investment analyst projects a security’s future price to be.
  9. Economics

    What's a Centrally Planned Economy?

    A centrally planned economy is one where the government controls the country’s supply and demand of goods and services.
  10. Investing Basics

    Understanding Buy Stop Orders

    A buy stop order is an order to buy a stock at a specific price above its current market price.

You May Also Like

Hot Definitions
  1. Dog And Pony Show

    A colloquial term that generally refers to a presentation or seminar to market new products or services to potential buyers.
  2. Topless Meeting

    A meeting in which participants are not allowed to use laptops. A topless meeting organizer can also ban the use of smartphones, ...
  3. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  4. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  5. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  6. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!