Correlation Coefficient

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DEFINITION of 'Correlation Coefficient'

A measure that determines the degree to which two variable's movements are associated.

The correlation coefficient is calculated as:

 

Correlation Coefficient

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BREAKING DOWN 'Correlation Coefficient'

The correlation coefficient will vary from -1 to +1. A -1 indicates perfect negative correlation, and +1 indicates perfect positive correlation.

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RELATED FAQS
  1. How can I run linear and multiple regressions in Excel?

    The first step in running regression analysis in Excel is verifying that your software has the capabilities to perform the ... Read Full Answer >>
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    The correlation coefficient has limited ability in predicting returns in the stock market for individual stocks, but it may ... Read Full Answer >>
  3. Can the correlation coefficient be used to measure dependence?

    The correlation coefficient can be used to measure the linear dependence between two random variables. The most common correlation ... Read Full Answer >>
  4. What does it mean if the correlation coefficient is positive, negative, or zero?

    The correlation coefficient measures the robustness of the relationship between two variables. Pearson's correlation coefficient ... Read Full Answer >>
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    The covariance between Stock A and Stock Z is 10.32, while the correlation coefficient between the two stocks is -0.35. ... Read Full Answer >>
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