correlation coefficient > define

noun

• A statistic representing how closely two variables co-vary; it can vary from -1 (perfect negative correlation) through 0 (no correlation. to +1 (perfect positive correlation))
  • usage: "what is the correlation between those two variables"
  • synonyms: coefficient of correlation, correlation

Degree to which two series of numbers plot as a straight line. A' Correlation Coefficient' of 1 (or -1) indicates that the two series of numbers plot exactly along a straight line. A correlation coefficient of zero indicates that there is no straight line relationship between the two series of numbers. As applied to two portfolios, a high correlation coefficient for the relative returns indicates that the portfolio values have moved in tandem and a low correlation coefficient means the opposite. When the correlation coefficient is high, one portfolio could have been used as a surrogate or a hedge for the other.