Help, how do you calculate correlation coefficient???

Question

I have a finance test tommorow and the teach will give us a set of stock return rates and we need to calculate correlation coefficient and covariance. I have no idea where to start and when I look at the formulas I just get lost. Help!

Answer 1

Well the correlation of two variables starts with a plot of paired data, one for each of the two variables.   That is to say a scatter plot with (x,y) values for one measure vs. another measure.  These define a linear equation in the form y = mx + b where m is the slope and b is the y intercept.   The concept of a coefficient of correlation is based on "r".  Maybe if you looked at an elementary statistics book you might get a better idea what this is all about.  It is hard to explain.  See below:  Hope this helped.

Answer 2

I would use Excel to calculate it using the instructions at

http://www.gifted.uconn.edu/Siegle/resea...

If you want to do it manually you can follow the instructions at

http://www.easycalculation.com/statistic...