What is CORRELATION?

A statistical measure that indicates the extent to which two or more variables (such as financial ASSET prices) move in the same direction, or different directions. Correlation is often used to price and manage certain COMPLEX DERIVATIVES (e.g., MULTIINDEX OPTIONS), quantify PORTFOLIO RISK exposures, and determine appropriate HEDGE RATIOS. See also COEFFICIENT, RISK.

More On This Topic




Link to This Definition

Did you find this definition of CORRELATION helpful? You can share it by copying the code below and adding it to your blog or web page.
Written and fact checked by The Law Dictionary