Limitations of Correlation Measurement

Limitations of Correlation Measurement

All metrics used to analyse financial markets have limitations. As you will see in this video, correlation and covariance are no different.
Overview

While correlation is a helpful measure, it is by no means perfect. Some of its limitations include change over time, correlation vs causation and the relative strength of correlation.

Key learning objectives:

  • Understand and interpret the limitations of correlation

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Summary
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Expert
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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