A brief follow-up to my earlier message, with an attempt at
a more intuitive explanation of the virtue (not absolute or
overwhelming) of correlation analysis in re. the price-value
relationship.
What I'm saying is that it takes "stronger price-value
glue", so to speak, to maintain the dispersion of sectoral
price-to-value ratios below any given bound, the larger the
dispersion of sector sizes measured by value. The
coefficient of correlation between sectoral price and
sectoral value, which factors in the degree of dispersion of
sector sizes by value, is one possible measure of the
strength of that glue.
Allin Cottrell
Department of Economics
Wake Forest University