A tool employing spreadsheet software and the Pearson product-moment correlation coefficient (PMCC) to evaluate relationships between option prices is commonly utilized. It enables the quantification of correlation, indicating the strength and direction of a linear association between two sets of options data. An example involves assessing the correlation between the prices of call options on two different stocks within a specified timeframe using a Google Sheets implementation.
The employment of this methodology offers advantages such as enhanced risk management and improved decision-making in options trading. Understanding the correlation between different options can assist in constructing diversified portfolios, hedging against potential losses, and identifying arbitrage opportunities. Historically, manual calculation of correlation coefficients was time-consuming; however, spreadsheet software significantly streamlines this process, making it accessible to a wider range of investors and analysts.