Correlation

Posted in Finance, Accounting and Economics Terms, Total Reads: 658
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Definition: Correlation

It is the measure of the degree of relationship between the variables, i.e. the degree of their relatedness. It varies from +1 to -1.

0 to -1 would mean negatively correlated. I.e. an increase in one variable would cause decrease in another variable and vice versa.

0 to +1 would mean positively correlated. I.e. an increase in one variable would cause increase in another variable and vice versa.

Example: There’s a positive correlation between studying and marks obtained in the exam.

The Carl Pearson’s coefficient of variation is defined as follows.

Correlation

Where x and y are two variables.



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