Related: What is Quantitative Analysis? Other types of correlations To avert a hedge when oil prices decline, airline companies must strategize how to invest part of their portfolio in airline stocks using smart asset allocation techniques. Investment portfolios can change drastically when a negative correlation between two variables breaks down. When the price of jet fuel goes down, it causes a positive impact on the earnings of airline companies. Similarly, a rise in the prices of crude oil results in low airline stock prices, eventually impacting the earnings of airline businesses. When economies are performing strongly, stocks generally do better than bonds. In a correlation between stocks and bonds, the coefficient is negative. Inverse correlation is highly effective in the investment industry. The cheaper the meal, the more customers who buy it. The colder the weather, the more clothes you have to wear. The longer you sleep, the less tired you feel. The longer you work, the shorter the free time you have. The following examples represent situations where the correlation between the variables is negative: Statisticians use negative correlation to determine the strength of the relationship between two variables and how to predict profits and losses for planning. Correlation does not deliberately translate to causation. When two variables correlate, they form a decipherable link between their values, which may either be coincidental or a result of an underlying cause.

In this article, we explore what negative correlation is, provide examples, define other types of correlations, and discuss their importance. Understanding how to identify and calculate a negative correlation can help you think more critically. The value of variable x consequently drops when variable y rises. A negative correlation means that when the value of variable x is high, the value of variable y becomes low. A negative or inverse correlation is an inverse relationship between two variables.

Fun negative correlation examples