DEFINITION of Cross-Correlation

Cross correlation is a measurement that tracks the movements of two variables or sets of data relative to each other. In its simplest version, it can be described in terms of an independent variable, X, and two dependent variables, Y and Z. If independent variable X influences variable Y and the two are positively correlated, then as the value of X rises so will the value of Y. If the same is true of the relationship between X and Z, then as the value of X rises, so will the value of Z. Variables Y and Z can be said to be cross correlated because their behavior is positively correlated as a result of each of their individual relationships to variable X. Cross correlation can also occur with sets and time series of data.

BREAKING DOWN Cross-Correlation

Cross correlation is generally used when measuring information between two different time series. The range of the data is -1 to 1 such that the closer the cross-correlation value is to 1, the more closely the information sets are.