Positive correlation exists when two variables move in the same direction. A basic example of positive correlation is height and weight â€“ taller people tend to be heavier, and vice versa. In some cases, positive correlation exists because one variable influences the other. In other cases, the two variables are independent from one another and influenced by a third variable. The field of economics contains many cases of positive correlation. In microeconomics, demand and price are positively correlated. In macroeconomics, positive correlation exists between consumer spending and gross domestic product (GDP).
Microeconomics, which analyzes individual consumers and firms, features many instances of positive correlation between variables, one of the most common being the relationship between demand and price. When students study microeconomics and statistics, one of the first concepts they learn about is the law of supply and demand and the influence that it has on price. The supply and demand curve shows that when demand increases without a concomitant increase in supply, a corresponding increase in price occurs. Similarly, when a demand for a good or service decreases, its price also drops.
The relationship between demand and price is an example of causation as well as positive correlation. An increase in demand causes the corresponding increase in price; the price of a good or service increases precisely because more consumers want it and therefore are willing to pay more for it. When demand decreases, that means that fewer people want a product and sellers must lower its price to entice people to buy it.
In contrast, supply is negatively correlated with price. When supply decreases without a corresponding demand decrease, prices increase. The same number of consumers now compete for a reduced number of goods, which makes each good more valuable in the eye of the consumer.
Positive correlation also abounds in macroeconomics, the study of economies as a whole. Consumer spending and GDP are two metrics that maintain a positive relationship with one another. When spending increases, GDP also rises as firms produce more goods and services to meet consumer demand. Conversely, firms slow production amid a slowdown in consumer spending to bring production costs in line with revenues and limit excess supply.
Like demand and price, consumer spending and GDP are examples of positively correlated variables where movement by one variable causes movement by the other. In this case, consumer spending is the variable that effects a change in GDP. Firms set production levels based on demand, and demand is measured by consumer spending. As the level of consumer spending moves up and down, production levels strive to match the change in demand, resulting in a positive relationship between the two variables.

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 fund managers use correlation to create portfolio diversity?
Read about how contemporary investment fund managers use the concept of correlation to add diversification among assets in ... 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 >> 
How does correlation affect the stock market?
Learn about the role correlation plays in prudent stock market investing, and how the correlation coefficient is used to ... 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 does a negative correlation coefficient mean?
Discover the meaning of a negative correlation coefficient, how this compares to other correlation coefficients and examples ... Read Answer >>

Investing
Is the Stock Correlation Strategy Effective?
The synchronized movement among stocks and markets in recent years is challenging diversification. 
Investing
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. 
Insights
Prices of Stocks and Bonds Move More in Tandem
Correlation between stock and bond prices in the U.S. have reached a 10year high, reversing a broader trend of negative correlation. 
Investing
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 ... 
Insights
Explaining The World Through Macroeconomic Analysis
From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone. 
Managing Wealth
Microeconomics vs. Macroeconomics: Which Is More Useful for Investment?
Find out why investors are better off ignoring macroeconomic forecasts, and should instead focus on the lessons that microeconomics can teach them. 
Insights
Introduction To Supply And Demand
Find out all about supply and demand and how it relates to your daily purchases. 
Investing
Explaining Autocorrelation
Autocorrelation is the measure of an internal correlation with a given time series. 
Insights
What is Demand?
Demand is the economic term for the cumulative wants and desires of consumers as they relate to a particular good or service. Generally speaking, if all other factors remain constant, as demand ...

Negative Correlation
In statistics, a perfect negative correlation is a relationship ... 
Inverse Correlation
A contrary relationship between two variables such that they ... 
Demand
An economic principle that describes a consumer's desire and ... 
Benchmark For Correlation Values
A benchmark or point of reference chosen by an investment fund ... 
Cluster Analysis
An investment approach that places securities into groups based ... 
Correlation
In the world of finance, a statistical measure of how two securities ...