Correlation Coefficient

Loading the player...

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

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.

RELATED TERMS
  1. Autocorrelation

    A mathematical representation of the degree of similarity between ...
  2. Copula

    A statistical measure that represents a multivariate uniform ...
  3. Pearson Coefficient

    A type of correlation coefficient that represents the relationship ...
  4. Covariance

    A measure of the degree to which returns on two risky assets ...
  5. Coefficient Of Variation - CV

    A statistical measure of the dispersion of data points in a data ...
  6. Correlation

    In the world of finance, a statistical measure of how two securities ...
Related Articles
  1. Mutual Funds & ETFs

    The Top 5 Retail ETFs for 2016 (RTH, PMR)

    Explore detailed analyses of the top exchange-traded funds holding retail-related stocks for 2016, and learn about the characteristics of the funds.
  2. Economics

    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.
  3. Mutual Funds & ETFs

    The Top 3 ETFs For Investing in the Russell 200 Index (IWL, IWY)

    Learn about three ETFs that track the Russell Top 200 Index and how these ETFs have a very high correlation with the S&P 500 index.
  4. Active 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 ...
  5. Investing Basics

    Diversification: Protecting Portfolios From Mass Destruction

    This investing strategy retains its charm as a protection against random events in the market.
  6. Professionals

    Microsoft Excel Features For The Financially Literate

    Here are some of Excel's functions and features that a financial professional can use to make his or her job more efficient.
  7. Forex Education

    Using Currency Correlations To Your Advantage

    Knowing the relationships between pairs can help control risk exposure and maximize profits.
  8. Term

    How Market Segments Work

    A market segment is a group of people who share similar qualities.
  9. Active Trading

    Market Efficiency Basics

    Market efficiency theory states that a stock’s price will fully reflect all available and relevant information at any given time.
  10. Fundamental Analysis

    5 Basic Financial Ratios And What They Reveal

    Understanding financial ratios can help investors pick strong stocks and build wealth. Here are five to know.
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 >>
  2. What is the difference between a copay and a deductible?

    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 >>
  5. The covariance between Stock A and Stock Z is 10.32, while the correlation coefficient ...

    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 >>
  6. 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 real-world ... Read Full Answer >>
Hot Definitions
  1. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  2. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  3. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  4. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  5. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  6. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center