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Banking Essentials - Part I

This pathway will walk us through the basics of banks, starting with some of the different types and their main functions, then starting to look at the regulation faced by the banks, both before and after the Global Financial Crisis.

Greenwashing

Greenwashing is the act of distributing false information about something being more environmentally friendly than it actually is.

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Expert led content

+1,000 expert presented, on-demand video modules

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Gain CPD / CPE credits and professional certification

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Build, scale and manage your organisation’s learning

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Tackling the Cost of Living Crisis

In this video, Max discusses the cost-of-living crisis currently enveloping the UK. He examines its impact on households as well as the overall economy.

CSR and Sustainability in Financial Services

In the first video of this two-part video series, Elisa introduces us to sustainability. She begins by looking at the difference between sustainability and corporate social responsibility, two terms that can be easily confused.

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Book a demo

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What is Correlation?

What is Correlation?

Abdulla Javeri

30 years: Financial markets trader

In the second video of the series, Abdulla explains the Pearson correlation coefficient. He discusses some of its key characteristics and outlines how to use it, step-by-step, with an example.

In the second video of the series, Abdulla explains the Pearson correlation coefficient. He discusses some of its key characteristics and outlines how to use it, step-by-step, with an example.

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What is Correlation?

4 mins 56 secs

Key learning objectives:

  • Understand and learn how to calculate correlation

Overview:

Correlation can be used to represent the direction and magnitude of the relationship between two assets.

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Summary

What is correlation?

Correlation, signified by the Greek letter rho, scales or standardises the covariance number, neutralising the magnitude. As we can see from the formula, it is calculated by dividing the covariance by the product of the respective standard deviations of the two assets being considered. The result is a correlation number between minus one and plus one. That does two things. Firstly, the sign defines the directional relationship and secondly it gives you an idea of the strength of that relationship.

Pearson's ρ = Cov(xy)/σxσy

How do you interpret the correlation number?

A number close to zero suggests that the movements of the two assets are unrelated, uncorrelated. The closer you get to the limits of minus and plus one, the greater the connection. If it’s plus one, movements in one are exactly mirrored by movements in the other. Let’s just introduce one more bit of terminology and that’s r squared, or the coefficient of determination. Squaring the correlation number tells us what proportion of the change in one can be explained by a change in the other.

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Abdulla Javeri

Abdulla Javeri

Abdulla’s career in the financial markets started in 1990 when he entered the trading floor of the London International Financial Futures Exchange, LIFFE, and qualified as a pit trader in equity and equity index options. In 1996, Abdulla became a trainer for regulatory qualifications and then for non-exam courses, primarily covering all major financial products.

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