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.

BREAKING DOWN '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 Coefficient

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

    A standard against which the performance of a security, mutual ...
  3. Risk Measures

    Statistical measures that are historical predictors of investment ...
  4. Negative Correlation

    A relationship between two variables in which one variable increases ...
  5. Information Coefficient - IC

    A correlation value that measures the relationship between a ...
  6. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's ...
Related Articles
  1. Investing

    Correlation

    In the world of finance, correlation is a statistical measure of how two securities move in relation to each other.
  2. Investing

    What's the Correlation Coefficient?

    The correlation coefficient is a measure of how closely two variables move in relation to one another. If one variable goes up by a certain amount, the correlation coefficient indicates which ...
  3. Financial Advisor

    4 Reasons Why Market Correlation Matters

    Learn about how correlation can be used to measure how broader markets move in relation to each other. See how correlation is used to manage risk.
  4. Investing

    Understanding the Oil & Gas Price Correlation

    Learn how the correlation between the commodity prices for natural gas and oil changed from 2004 to 2015 due to increased natural gas production.
  5. Trading

    Using Currency Correlations To Your Advantage

    Knowing the relationships between pairs can help control risk exposure and maximize profits.
  6. Investing

    PRHSX: Risk Statistics of Health Sciences Mutual Fund

    Examine the risk metric of the T. Rowe Price Health Sciences Fund. Analyze beta, capture ratios and standard deviation to assess volatility and systematic risk.
  7. Investing

    Benchmark To Show Winning Returns

    You can't win if you don't keep score. Read on to learn how to measure your returns.
  8. Investing

    How To Trade Currency And Commodity Correlations

    Relationships between currencies and commodities exist throughout the financial markets. Find out how to trade these trends.
  9. Investing

    What's a Benchmark?

    A benchmark is a standard investors choose to gauge the performance of their portfolios.
RELATED FAQS
  1. What is the difference between a copay and a deductible?

    Learn how the correlation coefficient may be used to predict the relationship between the returns of two stocks, but also ... Read Answer >>
  2. How does correlation affect the stock market?

    Learn about the role correlation plays in prudent stock market investing, and how the correlation coefficient is used to ... Read Answer >>
  3. What does a negative correlation coefficient mean?

    Discover the meaning of a negative correlation coefficient, how this compares to other correlation coefficients and examples ... Read Answer >>
  4. How do I calculate correlation between market indicators and specific stocks?

    Discover how to calculate the correlation coefficient between market indicators and stock prices, a critical skill in technical ... Read Answer >>
  5. Can the correlation coefficient be used to measure dependence?

    Understand the coefficient of correlation and its use in determining the relationship between two variables through the concepts ... Read Answer >>
  6. How can you calculate correlation using Excel?

    Find out how to calculate the Pearson correlation coefficient between two data arrays in Microsoft Excel through the CORREL ... Read Answer >>
Hot Definitions
  1. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  2. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  3. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  4. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  5. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  6. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
Trading Center