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.

Multivariate Model
A popular statistical tool that uses multiple variables to forecast ... 
Skewness
Describe asymmetry from the normal distribution in a set of statistical ... 
Probability Distribution
A statistical function that describes all the possible values ... 
Correlation Coefficient
A measure that determines the degree to which two variable's ... 
Uniform Distribution
In statistics, a type of probability distribution in which all ... 
Positive Correlation
A relationship between two variables in which both variables ...

Professionals
Common Probability Distribution Properties
CFA Level 1  Common Probability Distributions  Properties 
Economics
Understanding Statistics
Statistics provide the means to analyze data and then summarize it into a numerical form. 
Professionals
Distribution of Returns
Distribution of Returns 
Active Trading
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Discover a few of the most popular probability distributions and how to calculate them. 
Forex Education
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Term
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Investing Basics
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. 
Trading Strategies
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Trading Strategies
Is the Stock Correlation Strategy Effective?
The synchronized movement among stocks and markets in recent years is challenging diversification.

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 >> 
How is correlation used differently in finance and economics?
Take a look at the similarities and differences between how statistical correlation is applied in economics as opposed to ... 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 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 >>