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Cropped version of the official logo of Dr Krzysztof Ozimek, representing quantitative finance education and research.
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  • Scatter plot illustrating perfect nonlinear dependence missed by Pearson correlation
    Quantitative Finance

    When Perfect Correlation Meets a Pearson Shrug – Nonlinear Dependence Woes

    Dr Krzysztof Ozimek, a Quantitative Investment & Trading Research EducatorDr Krzysztof Ozimek

    In the world of data science and quantitative finance, correlation is often the first tool used to detect associations between variables. Yet, not all that appears uncorrelated is truly independent, and not all dependence is linear.

    This post explores a striking example that reveals how Pearson correlation can entirely miss the mark when faced with nonlinear relationships—leading to analytical oversights that may have real financial consequences. If you’ve ever wondered whether correlation always tells the whole story, you’re about to find out why the answer is a resounding “no”.

    Read More When Perfect Correlation Meets a Pearson Shrug – Nonlinear Dependence WoesContinue

  • Scatter plot visualization from Desmos showing how increasing noise (sigma) reduces the strength of Pearson correlation, with dots spreading around a linear trendline.
    Quantitative Finance

    Pearson Correlation — Narrow in Meaning, Wide in Misuse

    Dr Krzysztof Ozimek, a Quantitative Investment & Trading Research EducatorDr Krzysztof Ozimek

    Pearson linear correlation coefficient is commonly used to describe both the direction and strength of association between two variables. However, it is often misapplied to situations where the relationship is not linear, despite the coefficient being explicitly designed to measure only linear relationships.

    Read More Pearson Correlation — Narrow in Meaning, Wide in MisuseContinue

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