Chapter 50
Using correlations to summarize relationships
Questions answered in this chapter:
How are monthly stock returns for Microsoft, GE, Intel, GM, and Cisco related?
What is the relationship between correlation and R-squared?
How does correlation relate to regression toward the mean?
Trend curves are a great help in understanding how two variables are related. Often, however, you need to understand how more than two variables are related. Looking at the correlation between any pair of variables can provide insights into how multiple variables move up and down in value together.
The correlation (usually denoted by r) between two variables (call them x and y) is a unit-free measure of the strength of the linear relationship between x
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