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Monday, December 28, 2015

Correlation Isn't Necessarily Transitive

If X is correlated with Y, and Y is correlated with Z, does it follow that X and Z are correlated?

No, not necessarily. That is, the relationship of correlation isn't necessarily transitive.

In a blog post from last year the Fields Medallist, Terrence Tao, discusses the question: "When is Correlation Transitive?", and provides a thorough mathematical answer.

He also provides this simple example of correlation intransitivity: 


This is something for students of econometrics to keep in mind!


© 2015, David E. Giles