Example of using correlation coefficients Let’s say that you own three stocks, which we’ll call Company A, Company B, and Company C. All three are growth stocks in the technology space .

In the above example, Apple and the S&P 500 have a correlation coefficient of 0.73817, which indicates a strong relationship between the two over 90 days of data.

Thus, if we calculate the correlation coefficient including this outlier, it would suggest a weaker correlation between the stock and the S&P 500 than actually exists on most trading days.

There are two key assumptions for the Spearman’s rank correlation coefficient: The data should be on the ordinal or continuous scale. An example of an ordinal variable is a survey question that ranks ...

A statistical measure of the linear relationship between two variables. The range of a correlation co-efficient is from -1 to +1. Variables with a positive correlation move in the same direction ...

The correlation coefficient ranges from -1 to 1. Exactly 1 is considered perfect. It indicates that one security will move in the same direction when another security moves up or down.

Based on whether the correlation coefficient is +1, -1 or 0, you can determine if they are positively associated, negatively associated or not associated at all, respectively.

Example 8.1: Correlation. This example defines modules to compute correlation coefficients between numeric variables and standardized values for a set of data. /* Module to compute correlations */ ...

Figure 3: Effect of noise and sample size on Pearson's correlation coefficient r. ( a ) r of an n = 20 sample of ( X , X + ɛ), where ɛ is the normally distributed noise scaled to standard ...