




A correlation coefficient is a numerical, descriptive measure of the strength of the linear relationship between two variables. Values for the correlation coefficient range between 1 and +1, with a correlation coefficient of +1 indicating that the two variables have a perfect, upwardsloping (+) linear relationship and a correlation coefficient of 1 showing that the two variables are perfectly related in a downwardsloping, () linear sense. A correlation coefficient of 0 demonstrates that the variables have no relationship, and are independent. A correlation coefficient is determined through statistical analysis of sample data as it is fitted to a modeled linear equation. For investors, knowing a correlation coefficient can be useful in the following way: If one finds that the S&P 500 (variable x) has a 0.85 correlation coefficient with regards to their investment fund's average returns (variable y), the the investor can expect a pretty strong positive relationship between gains in the S&P and his/her portfolio. If the correlation coefficient were 0.85, the investor could expect to see his/her portfolio lose value as the S&P gains.
Rate this correlation coefficient definition...




Where is the market headed? The answer may surprise you. Find out with the exclusive & Barron's recommended charts of Chart of the Day. 

Popular Terms: implied volatility, EBITDA, minority interest, VIX, class C shares, 1035 exchange, real GDP, 401a, labor relations, per diem, required rate of return, reverse mortgage, stock market close, inflation, LIBOR, margin rate, 144a, debt service coverage, diluted share, in escrow, dividends payable, retained earnings, option premium, Key Rate Duration, quality assurance, FTSE, liquidity ratio, irrevocable trust, command economy, deferred revenue, whollyowned subsidiary, cancelled check, covered put, average price per share, APR, Zero Cost Collar, 1031 exchange, current ratio, FICO score, balance sheet, annual return, stock split, deferred tax, exdividend date, phantom income, exdividend, open position, risk management, limit order


 