CORRELATION COEFFICIENT

A measure of CORRELATION, typically computed as: where Cov (A,B) is the covariance between ASSETS A and B, A is the STANDARD DEVIATION of asset A and B is the standard deviation of asset B. A perfect positive correlation coefficient (+1) means a unit change in the price of one reference leads to the same unit change in the price of the second; a perfect negative correlation coefficient (1) means they move in equal but opposite directions; a correlation of 0 indicates prices are uncorrelated, or independent. See also CORRELATED CREDIT RISK, CORRELATION RISK.

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