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ERM Glossary: Tail correlation

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This is the correlation between observations in the tails of distributions.

 

‘Correlations’ between tails of distributions often differ from correlations applicable to the generality of the distributions and are thus potentially poorly estimated using standard correlation coefficients (calculated as per e.g. MnCorrelation), see e.g. the attached slide.

 

The coefficient of tail dependence can be thought of as a limiting version of tail correlation.

 


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