Monday, 26 January 2015

How to build a correlation matrix in Python

Suppose you have an array of data, stocks returns for instance, and you are wondering whether there is some degree of correlation. If you are using Python then it is easy to plug in your data and do some simple calculations.

Here is a simple example of a correlation matrix using Python. This matrix shows the correlation between 10 variables (10x10 matrix): as you can see, the correlation of a variable with itself is 1 as expected.

correlation

By entering more variables into the calculation the matrix becomes more difficult to interpret although it remains quite nice to visualize. Here below is an example of a 50x50 matrix.

corr2

The code I used is really simple, you can find it here below. Basically I built a random array with 10/50 data points and then used the numpy function “corrcoef” which handles all the troubles of building a matrix in an elegant way.

2 comments:


  1. This is a great website, so many people need this information, thanks for providing it. I love your color scheme too!

    Jin
    www.imarksweb.org

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  2. Glad you liked it and that it was useful. Thank you for visiting.

    ReplyDelete