Correlation coefficient

From CNM Wiki
Revision as of 23:49, 1 November 2019 by Gary (talk | contribs) (Definitions)
(diff) ← Older revision | Latest revision (diff) | Newer revision → (diff)
Jump to: navigation, search

Correlation coefficient, ρ (rho), is a standardized measure of how two random variables co-vary. A correlation coefficient (ρ) of +1.0 means that the two variables move up and down in perfect synchronization, whereas a coefficient of −1.0 means the variables always move in opposite directions. A correlation coefficient of zero suggests that the two variables are not related to one another; that is, they are independent.


Definitions

According to Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition),

Correlation coefficient, ρ (rho). A standardized measure of how two random variables co-vary. A correlation coefficient (ρ) of +1.0 means that the two variables move up and down in perfect synchronization, whereas a coefficient of −1.0 means the variables always move in opposite directions. A correlation coefficient of zero suggests that the two variables are not related to one another; that is, they are independent.

According to Fundamentals of Financial Management by Eugene F. Brigham and Joel F. Houston (15th edition),

Correlation coefficient, r. A measure of the degree of relationship between two variables.

Related concepts

Related lectures