DEFINITION of 'Multicollinearity'
In statistics, the occurrence of several independent variables in a multiple regression model are closely correlated to one another. Multicollinearity can cause strange results when attempting to study how well individual independent variables contribute to an understanding of the dependent variable. In general, multicollinearity can cause wide confidence intervals and strange P values for independent variables.
INVESTOPEDIA EXPLAINS 'Multicollinearity'
Multicollinearity suggests that several of the independent variables are closely linked in some way. Once the collinear variables are identified, it may be helpful to study whether there is a causal link between the variables. The simplest way to resolve multicollinearity problems is to reduce the number of collinear variables until there is only one remaining out of the set. Sometimes, after some study it may be possible to identify one of the variables as being extraneous. Alternatively, it may be possible to combine two or more closely related variables into a single input.

Nonlinearity
A relationship which cannot be explained as a linear combination ... 
Variance Inflation Factor
A measure of the amount of multicollinearity in a set of multiple ... 
Statistical Significance
A result that is not likely to occur randomly, but rather is ... 
Statistics
A type of mathematical analysis involving the use of quantified ... 
Regression
A statistical measure that attempts to determine the strength ... 
Autoregressive
A stochastic process used in statistical calculations in which ...

What is the difference between earnings and income?
The differences between earnings and income change depending on the context. Technically speaking, personal earnings are ... Read Full Answer >> 
What is the formula for calculating beta?
Beta is a measure used in fundamental analysis to determine the volatility of an asset or portfolio in relation to the overall ... Read Full Answer >> 
How can I use a regression to see the correlation between prices and interest rates?
In statistics, regression analysis is a widely used technique to uncover relationships among variables and determine whether ... Read Full Answer >> 
How do I use the rule of 72 to estimate compounding periods?
The rule of 72 is best used to estimate compounding periods that are factors of two (2, 4, 12, 200 and so on). This is because ... Read Full Answer >> 
How can I use Bollinger Bands® to spot options trading opportunities?
Traders can use Bollinger Bands in a couple of different types of trading strategies. The most common strategy is using Bollinger ... Read Full Answer >> 
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 >>

Investing Basics
What Are The Odds Of Scoring A Winning Trade?
Just because you're on a winning streak doesn't mean you're a skilled trader. Find out why. 
Home & Auto
Insure Your Future With A Career As An Actuary
If you've got excellent math skills, they can add up to a lucrative career as an actuary. 
Investing Basics
Regression Basics For Business Analysis
This tool is easy to use and can provide valuable information on financial analysis and forecasting. Find out how. 
Active Trading
The Linear Regression Of Time and Price
This investment strategy can help investors be successful by identifying price trends while eliminating human bias. 
Budgeting
The P/E Ratio: A Good MarketTiming Indicator
Check out the returns this newer technical analysis tool would've yielded over the period from 1920 to 2003. 
Fundamental Analysis
Explaining the Monte Carlo Simulation
Monte Carlo simulation is an analysis done by running a number of different variables through a model in order to determine the different outcomes. 
Fundamental Analysis
Explaining the Empirical Rule
The empirical rule provides a quick estimate of the spread of data in a normal statistical distribution. 
Economics
Explaining Demographics
Demographics is the study and categorization of people based on factors such as income level, education, gender, race, age, and employment. 
Fundamental Analysis
Calculating Degree of Financial Leverage
Degree of financial leverage (DFL) is a metric that measures the sensitivity of a company’s operating income due to changes in its capital structure. 
Fundamental Analysis
Calculating the Present Value of an Annuity
The present value of an annuity is the current, lump sum value of periodic future payments as calculated using a specific rate.