A correlation coefficient is a statistical measure that determines the strength and direction of linear relationship among selected variables. This visualisation uses Pearson product-moment correlation coefficient, also known as r, R, or Pearson's r, to calculate the correlation coefficient.

Correlation coefficient values range from -1 to 1. A negative value implies an inverse relationship, positive values imply a positive relationship, and 0 denotes a weak or non-linear relationship between the variables.

The Pearson coefficient cannot assess nonlinear relationships between variables. Also, correlation does not imply causation, and the Pearson coefficient cannot determine whether one of the correlated variables is caused by the other variable. It simply shows that they are related and provides insights into the strength and direction of that relationship.

Key Takeaways

This dashboard provides a correlation matrix for different assets for a specific time period. The measure is used to find out the relationship between different assets or asset classes.

The absolute value of the correlation coefficient gives us the relationship strength. The larger the number, the stronger the relationship. For example, a correlation coefficient of .80 denotes a stronger relationship than .60. Similarly, -.50 is a stronger negative correlation than -.20.

Correlation coefficients can be used to determine a portfolio’s risk and volatility. It can also be used to understand how different assets trend together or against each other during different phases of the economic cycle. For example, DXY index and precious metals such as Gold are negatively correlated, and so are the bond yields and S&P 500 index.