Inverse Relationship

Business, Legal & Accounting Glossary

Definition: Inverse Relationship


Inverse Relationship

Quick Summary of Inverse Relationship


An Inverse relationship refers to a type of correlation that exists between two different numbers. In the instance of an inverse relationship when one number has a value that rises, then the other will correspondingly fall in the value of the first number.




What is the dictionary definition of Inverse Relationship?

Dictionary Definition


In statistics, there is a negative relationship or inverse relationship between two variables if higher values of one variable tend to be associated with lower values of the other.

 


Full Definition of Inverse Relationship


An Inverse relationship refers to a type of correlation that exists between two different numbers.

A relationship between two numbers in which an increase in the value of one number results in a decrease in the value of the other number.

In the instance of an inverse relationship when one number has a value that rises, then the other will correspondingly fall in the value of the first number.

An inverse correlation, also known as negative correlation (or an inverse relationship), is a contrary relationship between two variables such that they move in opposite directions. For example, with variables A and B, as A increases, B decreases, and as A decreases, B increases.

Notes:

  • The relationship between two variables can change over time and may have periods of positive correlation as well.
  • Even though two sets of data may have a strong negative correlation, this does not imply that the behaviour of one has any influence on or causation relationship with the other.

Examples of Inverse Relationship in a sentence


There was an inverse relationship between the two numbers we had picked and my brother told me how it worked.

The inverse relationship between the crime rate and the sales of our product indicated an interesting relationship that needed more analysis.

The online retailer noticed the inverse relationship between the sales of candy bars and treadmills, focusing instead on selling only treadmills.


Synonyms For Inverse Relationship


inverse relation
inversely related
inversely proportional
in inverse proportion
inverse ratio


Related Phrases


treasury yield
Commodity Research Bureau Index (CRB)


Inverse Relationship FAQ's


Why Is There an Inverse Relationship Between Bond Yield and Prices

When there’s a stock market downturn — and there have been a couple of them in the last decade — the interest in bond investing perks up. The first lesson in bond investing is that when yield goes up, prices go down, and vice versa. However, it’s not quite that simple.

Bond Investing

There are two ways to invest in bonds. The first is to buy a bond when it’s issued at its face value — usually $1,000 — and collect the coupon, the stated interest rate for the life of the bond. Most bonds have a fixed coupon, so if you hold a 5 percent coupon bond, you’ll collect $50 a year, and then get your principal back when the bond matures. The second way to invest in bonds is to buy and sell them on the open market. Although you still will collect the coupon, the price you pay or receive for the bond on the open market fluctuates based on the prevailing interest rate.

Fixing The Price

With stocks or mutual fund shares, you know the price. A stock is traded throughout the day and a mutual fund’s share price — or net asset value — is reported at the end of every trading day. However, bond prices generally are derived prices set by industry pricing providers who consider many factors, primarily coupon rate, bond maturity and prevailing interest rates.

Rates Effect On Price

The coupon typically remains fixed for the life of the bond. A typical $1,000 bond with a 6 per cent coupon rate, pays $60 a year. When rates rise to 7 per cent, if you want to sell your bond, the price will need to be at whatever price will bring a 7 per cent yield. That happens to be $857.14, which means you will give up $142.86 if you sell your bond. But if rates go down to 5 per cent, you’ll expect the buyer to pay you a premium to get $60 a year. Now, your bond is worth $1,200, a 20 per cent markup.

Maturity’s Effect On Price

Bond pricing actually is a little more complicated than simply factoring in coupon rates. The rates typically rise and fall only a few hundredths of a percentage point day to day. But the change in bond prices can be more dramatic, depending on the length of the bond. “Yield to maturity” calculates the return an investor will get if the bond is held until the bond expires. That yield is boosted because it factors in reinvesting the interest over the life of the bond, and it can be further boosted if the buyer bought the bond below its face value. Because the yield to maturity can build through the power of compounding during added years over the life of a bond, interest rate changes affect long-term bonds more dramatically.

Price Quotes

Because most bonds have a face or par value of $1,000, bond prices are quoted as a percentage of par. A bond price quote of 91.63 would mean the bond would cost you $916.30. Similarly, a quote of 101.6 would mean the bond would cost $1,016.


Cite Term


To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.

Page URL
https://payrollheaven.com/define/inverse-relationship/
Modern Language Association (MLA):
Inverse Relationship. PayrollHeaven.com. Payroll & Accounting Heaven Ltd.
March 28, 2024 https://payrollheaven.com/define/inverse-relationship/.
Chicago Manual of Style (CMS):
Inverse Relationship. PayrollHeaven.com. Payroll & Accounting Heaven Ltd.
https://payrollheaven.com/define/inverse-relationship/ (accessed: March 28, 2024).
American Psychological Association (APA):
Inverse Relationship. PayrollHeaven.com. Retrieved March 28, 2024
, from PayrollHeaven.com website: https://payrollheaven.com/define/inverse-relationship/

Definition Sources


Definitions for Inverse Relationship are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 28th November, 2021 | 0 Views.