Correlation Matrix

It examines the association or link between multiple variables.

Reviewed by

Christopher Ballesteros

Expertise: Consulting | Private Equity

Updated:

January 23, 2023

A correlation matrix examines the association or link between multiple variables. A correlation refers to a connection between two things. So, the addition of a matrix involves the use of several variables that are in conjunction with one another.

A couple of notes to keep in mind when measuring the correlation between variables:

1. A value of a positive or negative 1 implies a positive or negative association.
2. A value of 0 indicated there is no association.

More commonly seen in data sets, regressions, and analyses, a correlation matrix can be used similarly throughout all. Therefore, reading a correlation matrix should not be difficult, and it should summarize any given data set.

Remember, any value of 1 or close to 1 is considered a correlation. While a value of 0 or -1 equals negative or no correlation.

Whether you are looking at a firm’s quarterly transactions or a regression line model, creating a matrix can help outline the overall numerical set and determine variable correlations within a regression.

Correlation Matrix Example

To elevate your understanding and practice of the correlation matrix, let's discuss the requirements and variables needed to complete the matrix.

Within a newly created Excel sheet, simply input your data and the necessary number of variables used within the data set. The number of variables can range depending on the data set you are working with.

For simplicity, the example depicted throughout the data set compares student test scores, out of one hundred, to other classes.

Next, you will locate the Data tab at the top of the Excel page and navigate to the Data Analysis. Once you have opened the Data Analysis, select the “Correlation” tool to move forward in the matrix process.

Once selected, highlight the data set. As pictured in the example, the data set is organized in columns, so select the “columns” option within the Input Section as necessary.

Additionally, ensure the Output Section has selected “new worksheet ply” before continuing.

Now, you should see the data set rearranged to form a matrix of all variables and their correlating link. As photographed, your new data set should look similar to the one below.

As you may notice, the student test scores are now organized in a correlated matrix. In addition, the graph titles may be reworded for clearer understanding based on your specific data set.

If you want to learn more about the different mechanisms in building a matrix and organizing the data sets in color, practice with the Top Tip Bio’s Youtube tutorial.

Additionally, our Excel courses offer the resources to help improve your skills in formatting and utilizing various data functions.

Key Takeaways

• A correlation matrix identifies the relationship between two or more variables.
• There must be two or more variables involved to form a matrix.
• You can form different matrices on various numerical datasets.
• Excel spreadsheets provide the necessary functions to perform a correlation test.

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Researched and Authored by Caira Sotingco | LinkedIn

Reviewed and edited by Parul GuptaLinkedIn