The Financial Forecast Center™
The correlation coefficient is a a concept from statistics and is a measure of how well trends in the predicted values follow trends in actual values. It is a measure of how well the predicted values from a forecast model "fit" with the real-life data.
The correlation coefficient is a number between 0 and 1. If there is no relationship between the predicted values and the actual values the correlation coefficient is 0 or very low (the predicted values are no better than random numbers). As the strength of the relationship between the predicted values and actual values increases the value of the correlation coefficient increases toward 1.0. A perfect fit gives a coefficient of 1.0. Thus the higher the correlation coefficient the better.
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