# Correlation versus Causation

From Open Risk Manual

## Definition

**Correlation versus Causation** denotes a common debate in the context of Model Development of Statistical Models for Quantitative Risk Management which can be summarized as the difficulty of establishing *cause-and-effect relationships* between two (or more) variables on the basis of an observed associations or quantitative correlations between them.

The issue is an example of Model Risk.

## Implications for Risk Management

In the context of a Risk Model the challenge can arise in two contexts:

- establishing stable causal relationships between the set of explanatory variables ( risk factors)
- establishing stable causal relationships between explanatory variables and risk events or risk outcomes

## See Also

- For a general discussion in the context of statistics see wikipedia:Correlation does not imply causation