Correlation is a statistical measure that expresses the extent to which two variables change together at a constant rate.
Correlation tells us if the two variables have a linear relationship, and the strength of that relationship.
Formula to calculate correlation.
σx is the standard deviation of variable x.
σy is the standard deviation for variable y.
Example:
Suppose the covariance of two stocks x and y is 90, calculate their correlation if their standard deviation is 5 and 3 respectively.
Therefore, their correlation is 6.
