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.

Step two is to calculate the Pearson’s correlation coefficient, r, using the formula, the calculated parameters and our sample size (n = 20). In our example, we find Pearson’s correlation coefficient ...

Pearson coefficients range from +1 to -1, with +1 representing a positive correlation, -1 representing a negative correlation, and 0 representing no relationship.

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 .

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.

In this example, we see a perfect Pearson correlation. As the content length decreases, the ranking position steadily increases (gets worse). Each drop of 200 words corresponds to a drop of one ...

You may have already heard this surprising statistic that might seem puzzling to the uninitiated: every summer, ice cream ...

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 ...

Below, we examine negative correlation in more depth while providing real-world examples to show how this information can be used while building a balanced portfolio. Understanding Negative ...