Benchmark Correlation Definition
Benchmark Correlation measures the degree that an investment moves relative to its benchmark. We refer to Benchmark Correlation when calculating it for an individual fund or security, and Portfolios Correlation when calculating it for a portfolio.
How we Calculate Benchmark Correlation
Within a portfolio, investments are correlated against each other, as opposed to a benchmark. Therefore, we use two different formulas, depending on what we are calculating the Correlation of.
To see how we calculate Portfolio Correlation, click here.
The formula we use to calculate Benchmark Correlation is:
We use treasury bills for our risk free rate. To learn more, please click here.
For further reading, Investopedia is a great resource with video explainers. The page on Correlation can be found here.