In this video, we will briefly review the Pearson correlation coefficient. Of course, that's the most popular measure of correlation, but mostly just so we have a baseline to compare to the two measures of rank correlations. Specifically, we will look at the Spearman's rank correlation and...
I had certain queries related to the following
1.Pearson's correlation with expected values
Consider sample data set
Probability Returns ( X) Returns (Y)
O.1 15 % 8%
0.2 - 10 % -5 %
0.3 10 % 7%
Learning outcomes: Evaluate the limitations of financial modeling with respect to the model itself, calibration of the model, and the model’s output. Assess the Pearson correlation approach, Spearman’s rank correlation, and Kendall’s τ, and evaluate their limitations and usefulness in finance...