Close this search box.

Table of Contents



Autocorrelation, in finance, refers to the degree of similarity between a given time series and a lagged version of itself over successive time intervals. It measures the relationship between a variable’s current value and its past values. When high autocorrelation is present, information about previous periods can predict the next period quite well.


The phonetics of the keyword “Autocorrelation” is: /ˌɔːtoʊkɔːrəˈleɪʃən/

Key Takeaways

  1. Measure of Correlation: Autocorrelation is a statistical concept that is used to determine the degree of correlation between the values of the same variables across different instances in time or space. It measures the internal correlation within the series of data points.
  2. Effect on Model Performance: High autocorrelation in a time series dataset might be indicative of non-stationarity which can negatively affect the performance of certain models, especially ones where the assumption of independence between observations is crucial.
  3. Application in Various Fields: Autocorrelation has wide applications in the field of signal processing, econometrics, weather forecasting, and other areas where data points are taken over time or space and where patterns may repeat over certain intervals.


Autocorrelation is a crucial term in business and finance because it refers to the degree of similarity between a given time series and a lagged version of itself over successive time intervals. It helps to identify non-random patterns or trends in a data set over time. This concept is important for understanding the reliability of financial models, forecasts, and data analyses. Autocorrelation can expose whether current market returns are influenced by past returns, which can be vital for portfolio management and risk assessment. It can also help in identifying recurring patterns which in turn can deliver more efficient and effective financial decisions. By considering autocorrelation, businesses and finance professionals can improve their prediction models, data accuracy, and make strategic decisions based on more consistent and dependable data.


In the field of finance and business, autocorrelation plays a significant role in making strategic decisions based on analysis of data over various time periods. Essentially, autocorrelation helps in establishing relationships between an item of a time-series data and the same item from a past time period. This data-driven technique is often used by economists, financial analysts, and businesses to understand patterns and predict future trends or behaviors. Autocorrelation, also referred to as serial correlation, provides insights into how well the past values of a variable predict the future values, assisting in forecasting and reducing uncertainty in decision-making processes.

For instance, if a business notices a high level of autocorrelation in its sales data, it can infer that its sales tend to follow a particular pattern over time, allowing for effective sales forecasts and better inventory management. Similarly, in the stock market, financial experts may look at the autocorrelation of stocks or indices to study and forecast price movements. This helps in making informed investment decisions. However, it’s important to remember that autocorrelation can sometimes lead to misleading results if not interpreted correctly, as it does not necessarily imply causation.


1. Stock Market Prices: An investor may use autocorrelation to determine if there is a pattern with securities. If stock prices have been rising for a number of consecutive days, autocorrelation will be positive, indicating that prices are more likely to rise in the future. For example, if Google’s stock price has been increasing for several days, it may be inferred that the trend will continue.

2. Real Estate Prices: If there’s a high positive autocorrelation in real estate prices, it could indicate that property values in one neighborhood may influence the prices of properties in a nearby neighborhood. For example, if the prices of houses in Neighborhood A have been increasing, it’s possible that the prices in Neighborhood B (which is close to A) may also increase.

3. Sales Data: Retailers may analyze sales data to determine autocorrelation. For instance, if a supermarket sees that sales of holiday-themed items spike at certain times of the year, then they may infer that this is likely to repeat in future years. There’s an autocorrelation in sales data across time periods.

Frequently Asked Questions(FAQ)

What is autocorrelation?

Autocorrelation is a statistical concept that measures the degree of similarity between a given time series and a lagged version of itself over successive time intervals. It’s used primarily in data analysis and statistics.

Why is autocorrelation important in finance?

In finance, autocorrelation is used to identify non-random patterns in data series. It plays a critical role in portfolio management, investment strategy, risk management, and other financial activities.

Is Autocorrelation the same as Correlation?

No, autocorrelation is a type of correlation but specifically refers to the correlation of a variable with itself over different time periods. Regular correlation, however, refers to the relationship between two different variables.

How is autocorrelation measured?

Autocorrelation is often measured using the autocorrelation function (ACF) or the partial autocorrelation function (PACF). The range of autocorrelation is from -1 to 1.

What is the implication if autocorrelation is positive or negative?

If the autocorrelation is positive, it means the time series data is increasing, while it is decreasing if the autocorrelation is negative. An autocorrelation that is close to zero implies no autocorrelation.

Can autocorrelation lead to any issues in financial modeling?

Yes, autocorrelation can cause issues in statistical assumptions underlying some financial models. For instance, in regression analysis, if the error terms are autocorrelated, it violates the assumption of independence and could result in inefficient and biased estimates.

What is the Durbin-Watson test?

The Durbin-Watson test is a statistic test commonly used to detect autocorrelation in the residuals from a regression analysis.

How do I correct autocorrelation in a data set?

Autocorrelation can be corrected by using the appropriate model that accounts for it, such as the autoregressive model (AR), moving average model (MA), or the Autoregressive moving average model (ARMA). Others may include data transformation methods.

Related Finance Terms

  • Time Series Analysis
  • Stationarity
  • Lag
  • Serial Correlation
  • Durbin-Watson Statistic

Sources for More Information

About Our Editorial Process

At Due, we are dedicated to providing simple money and retirement advice that can make a big impact in your life. Our team closely follows market shifts and deeply understands how to build REAL wealth. All of our articles undergo thorough editing and review by financial experts, ensuring you get reliable and credible money advice.

We partner with leading publications, such as Nasdaq, The Globe and Mail, Entrepreneur, and more, to provide insights on retirement, current markets, and more.

We also host a financial glossary of over 7000 money/investing terms to help you learn more about how to take control of your finances.

View our editorial process

About Our Journalists

Our journalists are not just trusted, certified financial advisers. They are experienced and leading influencers in the financial realm, trusted by millions to provide advice about money. We handpick the best of the best, so you get advice from real experts. Our goal is to educate and inform, NOT to be a ‘stock-picker’ or ‘market-caller.’ 

Why listen to what we have to say?

While Due does not know how to predict the market in the short-term, our team of experts DOES know how you can make smart financial decisions to plan for retirement in the long-term.

View our expert review board

About Due

Due makes it easier to retire on your terms. We give you a realistic view on exactly where you’re at financially so when you retire you know how much money you’ll get each month. Get started today.

Due Fact-Checking Standards and Processes

To ensure we’re putting out the highest content standards, we sought out the help of certified financial experts and accredited individuals to verify our advice. We also rely on them for the most up to date information and data to make sure our in-depth research has the facts right, for today… Not yesterday. Our financial expert review board allows our readers to not only trust the information they are reading but to act on it as well. Most of our authors are CFP (Certified Financial Planners) or CRPC (Chartered Retirement Planning Counselor) certified and all have college degrees. Learn more about annuities, retirement advice and take the correct steps towards financial freedom and knowing exactly where you stand today. Learn everything about our top-notch financial expert reviews below… Learn More