# How to Calculate Correlation Coefficient in Excel

Microsoft Excel provides a built-in function, CORREL, to calculate this coefficient. The correlation coefficient, often denoted by the Greek letter ‘r,’ is a numerical measure that gauges the strength and direction of a linear relationship between two variables. We’ll guide you through calculating the correlation coefficient in Excel.

• ### Step 1. Prepare Your Data

First, you need to prepare your data. Ensure that your data points are in two columns and that both columns have the same number of data points. For instance, if you are comparing the monthly returns of two stocks, you should have the returns for each stock in separate columns, and each row should represent a different month.

It’s important to note that Excel’s CORREL function does not handle missing values. Therefore, you need to ensure that your data does not contain any empty cells, text, or logical values.

• ### Step 2. Use the CORREL Function

Once your data is prepared, you can calculate the correlation coefficient using the CORREL function. Click on the cell where you want the correlation coefficient to appear. Then, type without the quotation marks. Excel will prompt you to input the two ranges of cells that you want to compare. After you input the cell ranges, close the parenthesis and press Enter. Excel will calculate the correlation coefficient and display it in the cell.

You can also refer to these helpful articles on how to use Excel shortcuts:

Note

## FAQs

### How do you interpret a correlation coefficient of -0.8?

A correlation coefficient of -0.8 indicates a strong negative correlation, suggesting that the other tends to decrease as one variable increases.

### What does a correlation coefficient close to 0 signify?

A correlation coefficient close to 0 indicates a weak or no linear relationship between the two variables.

### Is there a correlation between correlation coefficient and causation?

No, correlation does not imply causation. A high correlation coefficient only indicates a statistical relationship, not a cause-and-effect relationship.

### Can you use non-numeric data to calculate the correlation coefficient in Excel?

No, the correlation coefficient in Excel requires numeric data. It does not work with non-numeric data or text.

### How often should you recalculate the correlation coefficient in dynamic datasets?

It’s advisable to recalculate the correlation coefficient regularly, especially if the dataset is dynamic and new data points are added.