Correlation Coefficient Formula

Correlation Coefficient Formula Calculation

Correlation coefficient (r) is a measure of the degree of correlation between two quantities or variables, such as the rates of return on stocks and on bonds. A negative coefficient of correlation indicates an inverse or negative relationship, whereas a positive value indicates a direct or positive relationship. The range of values is from -1 to +1 inclusive. A zero (0) value indicates that no correlation exists. Correlation coefficients are useful in asset class identification and portfolio diversification.

Correlation Coefficient Graph

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