Home → Techniques and Tips → Correlation in @RISK → Making Correlations Conditional
Question:
Is it possible to induce correlations between @RISK distribution functions in such a way that the coefficient of correlation depends on the results in other cells? That is, the level of correlation between variables would depend on the risk outcome in other variables.
Response:
Conditional correlations can be created by first modeling all possible cases of correlation and then using logic to control which of the correlated variables are passed into the model. Please see the attached example.
This example has three risk variables A, B, and C. The error terms for these three variables are correlated. However, the correlation between A, B, and C within a given period (t) will depend on the outcome for variable A in period (t-1).
last edited: 2012-06-29