Correlation


Correlation
In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used in advanced portfolio management.

Correlation is computed into what is known as the correlation coefficient, which ranges between -1 and +1. Perfect positive correlation (a correlation co-efficient of +1) implies that as one security moves, either up or down, the other security will move in lockstep, in the same direction. Alternatively, perfect negative correlation means that if one security moves in either direction the security that is perfectly negatively correlated will move in the opposite direction. If the correlation is 0, the movements of the securities are said to have no correlation; they are completely random.

In real life, perfectly correlated securities are rare, rather you will find securities with some degree of correlation.


Investment dictionary. . 2012.

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  • corrélation — [ kɔrelasjɔ̃ ] n. f. • 1718; correlacion v. 1420; bas lat. correlatio 1 ♦ Philos. Rapport entre deux phénomènes (⇒ corrélat) qui varient en fonction l un de l autre. ⇒ correspondance, interdépendance, réciprocité. ♢ Statist. Coefficient de… …   Encyclopédie Universelle

  • Correlation — Corrélation Cette page d’homonymie répertorie les différents sujets et articles partageant un même nom …   Wikipédia en Français

  • Correlation — Cor re*la tion ( l? sh?n), n. [LL. correlatio; L. cor + relatio: cf. F. corr[ e]lation. Cf. {Correlation}.] Reciprocal relation; corresponding similarity or parallelism of relation or law; capacity of being converted into, or of giving place to,… …   The Collaborative International Dictionary of English

  • correlation — I noun analogy, chain, collation, comparison, connection, corollary, correspondence, counterpart, equivalence, functionality, interchange, interconnection, interdependence, likeness, mutual, mutuality, parity, proportion, quid pro quo,… …   Law dictionary

  • correlation — 1560s, from M.Fr. corrélation, from cor together (see COM (Cf. com )) + relation (see RELATION (Cf. relation)) …   Etymology dictionary

  • correlation — [kôr΄ə lā′shən, kär΄ə lā′shən] n. [ML correlatio: see COM & RELATION] 1. mutual relationship or connection 2. the degree of relative correspondence, as between two sets of data [a correlation of 75%] 3. a correlating or being correlated… …   English World dictionary

  • Correlation — (v. lat.), 1) gegenseitige Beziehung; 2) Beziehung von 2 Wörtern od. Sätzen auf einander, so daß das od. der eine die Frage od. den Satz, das od. der andere die Antwort od. die Vergleichung enthält. Hieher gehören Comparatiwerhältnisse u.… …   Pierer's Universal-Lexikon

  • corrélation — CORRÉLATION. s. fém. Relation réciproque entre deux choses. Il n est d usage que dans le didactique. Les termes de père et de fils emportentcorrélation …   Dictionnaire de l'Académie Française 1798

  • correlation — [n] equating, equivalence alternation, analogue, complement, correspondence, correspondent, counterpart, interaction, interchange, interconnection, interdependence, interrelation, interrelationship, match, parallel, pendant, reciprocity,… …   New thesaurus

  • correlation — ► NOUN 1) a mutual relationship. 2) the process of correlating two or more things. 3) Statistics interdependence of variable quantities …   English terms dictionary

  • Correlation — In probability theory and statistics, correlation, (often measured as a correlation coefficient), indicates the strength and direction of a linear relationship between two random variables. In general statistical usage, correlation or co relation …   Wikipedia


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