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The inverse relationship is a negative relationship between two entities where the value of each moves in opposite directions to the other. For example – if the value of X and Y has an inverse relationship, it means, if the value of X increases the value of Y will decrease.
The inverse correlation coefficient is indicated by “r” and its value varies from -1 to 0. Perfect inverse correlation means r is equal to -1.
Some factors to consider in an inverse relationship are–
The two sets of data may have inverse relation but it does not signify the change in the value of one can influence the other.
Sometimes, the value of two variables can modify and create the situation of positive correlation.
The presence of negative correlation or positive does not indicate a causal relationship.
The relationship is not static. It fluctuates over time and an inverse relationship can turn into direct relation over time.
Examples of the inverse relationship
The best example to indicate inverse correlation is the graph of the dollar against the graph of the precious metals. If the US currency movement depreciates, the value of precious metals gold increases, and when the dollar appreciates, gold declines.
Stocks and bond markets often move in opposite directions but, in terms of, stock markets and investments, the two variables showing direct or inverse relationships may be influenced by a number of factors.
Like gold price is determined by fluctuation in dollar but it is also affected by the mining outputs from biggest mining companies, supply/demand, and other factors.
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