Modern Finance CorrelationToBenchmark

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CorrelationToBenchmark

Returns how closely an asset moves with its benchmark, from -1 to 1.

Syntax

CorrelationToBenchmark( assetReturns( ), benchmarkReturns( ) )

Examples

#import "std/money"
using money

'' How tightly the two move together, between -1 and 1.
dim as float64 r( 0 to 11 ) = { 0.02, -0.01, 0.03, 0.015, -0.025, 0.04, _
                               0.01, -0.005, 0.02, 0.03, -0.015, 0.025 }
dim as float64 b( 0 to 11 ) = { 0.018, -0.012, 0.025, 0.012, -0.02, 0.035, _
                               0.008, -0.004, 0.018, 0.028, -0.012, 0.022 }

print CorrelationToBenchmark( r( ), b( ) ).Value( )      '' 0.9968135918762368

'' A DOUBLED benchmark has correlation 1 but beta 2 -- correlation
'' measures tightness, beta measures the slope, and confusing the two is
'' a common mistake.
dim as float64 lev( 0 to 11 )
for k as int32 = 0 to 11
    lev( k ) = 2.0 * b( k )
next
print CorrelationToBenchmark( lev( ), b( ) ).Value( )    '' 1
print Beta( lev( ), b( ) ).Value( )                      '' 2

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Library: Finance
Category: Finance
Documented under: Nothing Becomes A Keyword
Source: pkg/std/money/finport.tiko in the tiko repository.