DEFINITION of 'Benchmark For Correlation Values'

A benchmark or point of reference chosen by an investment fund to measure correlation values such as beta, the coefficient of correlation "r" and the coefficient of determination "r2." These correlation values indicate the degree to which the fund's performance is related to its market (using the benchmark as a proxy for the market). A high correlation to its benchmark is generally considered to be favorable for the fund if their investment thesis closely follows the benchmark.

BREAKING DOWN 'Benchmark For Correlation Values'

The relevant benchmark for correlation values depends on the fund's investing mandate. For example, a large-cap US equity fund would usually use the S&P 500 as its benchmark for correlation values, while a large-cap Canadian equity fund would use the S&P/TSX Composite index as its benchmark.

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RELATED FAQS
  1. What Does it Mean if the Correlation coefficient is Positive, Negative, or Zero?

    When a coefficient is greater than zero, it is a positive relationship; when the value is less than zero, it is a negative ... Read Answer >>
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    Learn about the role correlation plays in prudent stock market investing, and how the correlation coefficient is used to ... Read Answer >>
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