DEFINITION of 'Copula'
A statistical measure that represents a multivariate uniform distribution, which examines the association or dependence between many variables. Although the statistical calculation of a copula was invented in 1957, it was not applied to financial markets and finance until the late '90s.
BREAKING DOWN 'Copula'
Copulas are a mathematical tool used in finance to help identify economic capital adequacy, market risk, credit risk and operational risk. Interdependence of returns of two or more assets is usually calculated using the correlation coefficient. However, correlation only works well with normal distributions, while distributions in financial markets are mostly skewed. The copula, therefore, has been applied to areas of finance such as option pricing and portfolio valueatrisk to deal with the skewness.

Uniform Distribution
In statistics, a type of probability distribution in which all ... 
Skewness
Describe asymmetry from the normal distribution in a set of statistical ... 
Probability Distribution
A statistical function that describes all the possible values ... 
Positive Correlation
A relationship between two variables in which both variables ... 
Variability
The extent to which data points in a statistical distribution ... 
Distribution Yield
The amount of cash flow received or paid out by an annuity, REIT ...

Trading
Understanding Statistics
Statistics provide the means to analyze data and then summarize it into a numerical form. 
Investing
Find The Right Fit With Probability Distributions
Discover a few of the most popular probability distributions and how to calculate them. 
Trading
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 ... 
Trading
Trading With Gaussian Models Of Statistics
The entire study of statistics originated from Gauss and allowed us to understand markets, prices and probabilities, among other applications. 
Managing Wealth
Using Normal Distribution Formula To Optimize Your Portfolio
Normal or bell curve distribution can be used in portfolio theory to help portfolio managers maximize return and minimize risk. 
Investing
What a Normal Distribution Means
Normal distribution describes a symmetrical data distribution, where most of the results lie near the mean. 
Investing
Pairs Trading: Correlation
Correlation is a term from linear regression analysis that describes the strength of the relationship between a dependent variable and an independent variable. Central to pairs trading is the ... 
Trading
Is the Stock Correlation Strategy Effective?
The synchronized movement among stocks and markets in recent years is challenging diversification. 
Managing Wealth
RSquared
Learn more about this statistical measurement used to represent movement between a security and its benchmark. 
Trading
What's Skewness?
Skewness describes how a data distribution leans.

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 >> 
How do I find positive correlation in the stock market?
Learn how positive correlation is found in the stock market, how correlation is calculated and how positive correlation is ... Read Answer >> 
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 >> 
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 >> 
What level of correlation among investments will guarantee market returns but have ...
Learn how modern portfolio theory uses correlation to determine the efficient frontier for which assets to include in a portfolio ... Read Answer >> 
What is the correlation between American stock prices and the value of the U.S. dollar?
The correlation between any two variables (or sets of variables) summarizes a relationship, whether or not there is any realworld ... Read Answer >>