Negative Correlation Examples, Definition, and How It Works

Negative correlation can be defined as the inverse relationship between two variables. When one variable increases, the other decreases, and vice versa. These variables move in opposite directions from each other and the correlation between them can vary drastically over a set period of time. In statistical terms, a perfect correlation is portrayed as -1.0. For comparison, a positive correlation is represented as +1, while zero correlation is represented as 0.

Negative correlation is important in various settings and is especially instrumental in financial portfolio development. A strong portfolio is one that is diverse in its investments. Negative correlation between different stock markets or sectors allows for a diversified portfolio that is more likely to withstand volatile market changes and provide solid returns over an extended period of time.

For example, someone who invests in both stocks and bonds typically has a portfolio with negative correlation. While stocks often outperform bonds when the economy is performing well, bonds often outperform stocks when the economy falters and interest rates are reduced. This demonstrates a negative correlation, since when stocks decrease in value, bonds increase, and vice versa.

The following are steps you can follow to determine if there is a negative correlation between two variables:

1. Identify your variables

You’ll first need to determine which variables you are measuring. For example, if you want to measure the relationship between rainy weather and sales in your restaurant, the days it rains and the amount of sales on those days would be your two variables.

2. Decide how you’re going to calculate the correlation

There are a few different methods you can use to determine the correlation between two variables. The easiest way is to use a correlation coefficient calculator. There are several available calculators online that are free to use.

3. Input the data

When inputing your correlations, you’ll need to designate one variable as the X variable and one as the Y variable. You’ll also need to have concrete numbers to input. Using the previous example, if it rains five days out of seven in a week, and you make a total of $5,000 in sales that week, you’ll input five as the X variable to represent rainy days and 5,000 as the Y variable to represent sales.

You’ll need several weeks’ worth of data for a more accurate calculation. So, if you measure the variables for five weeks, you’d input each X and Y variable for each week separately into the calculator.

4. Determine the correlation

Once you’ve input the data in the calculator, you’ll get a correlation number. For example, the correlation between rainy days and sales per week is -0.9. This means there is a strong negative correlation between rainy days and sales, or the more it rains, the less sales you make, or the less it rains, the more sales you make. As long as the number you get when calculating the correlation is negative, this means your variables have a negative correlation.

The following are several negative correlations examples in real-life settings:

1. The more you eat out at restaurants, the less you’ll cook food at home.
2. The slower you drive in your car, the longer it will take you to reach your destination.
3. The more time you spend at work, the less time you’ll have to pursue your extracurricular hobbies.
4. The colder it is outside, the more clothes you’ll wear.
5. The more cigarettes a person smokes, the less healthy they become.
6. The more you clean your home, the less dust you’ll have in your house.
7. The more you pay off your credit card bills, the less debt you’ll have.
8. The more you put towards a down payment for a home, the less mortgage you’ll have to pay off.
9. The better rested you feel, the less tired you’ll be.
10. The more money you spend on clothing, the less money you’ll have to buy food.
11. The more money you save for retirement, the less you’ll have to work when you get older.
12. The more you write with an ink pen, the less ink the pen will have in it.
13. The more time you spend reading, the fewer new books you’ll have.
14. The more you brush your teeth, the less likely it is that you’ll get cavities or other oral health issues.
15. The colder the weather is, the less your air conditioner will have to work to keep your home cool.
16. The faster you ride your bike, the less amount of time it will take you to get to where you’re riding.
17. The darker it is outside, the more light is required indoors to keep your home lit.
18. The more it rains, the less likely customers will want to go to an outdoor theme park.
19. The more food you eat, the less hungry you’ll be.
20. The better you take care of your car, the less likely it is to need regular repairs or part replacements.
21. The more time you spend on a project, the less time you’ll spend revising it for errors.
22. The more time you take off from work, the fewer vacation days you’ll have.
23. The more effort you put into your work, the less likely you are to have small mistakes.