CORRELATION VAR
correlation VAR: translation
Correlation VAR is a measure of a financial instrument's, a portfolio of financial instruments,' or an entity's exposure to reductions in value resulting from changes in prevailing interest rates.
Also called analytical VAR, correlation VAR is one of several different methods for calculating VAR. Analytical or correlation VAR compares the sensitivity of risk elements within a portfolio. The volatility of each component is then calculated using a standard matrix. This is the type of VAR calculated by popular models such as RiskMetrics. This is the least computationally insensitive of the three statistically based VAR measurements. However, this approach does not do a good job of reflecting option risk or of incorporating the risk of unlikely events.
See empirical VAR, historical VAR and value at risk ( VAR). American Banker Glossary