IS CORRELATION AND CAUSATION DIFFERENT?
There is much debate about the correlations of different risks, event types and business lines in risk management. The correlations are less relevant than the accuracy of the primary data.
A correlation of two events means that a high value for one risk is associated with a high value for the second risk. They both happen together and it is not an indication of which happened first.
Causation is where there is a linkage between two risks such that one risk causes another to happen. So, an earthquake may cause a fire (but a fire will not cause an earthquake). In other words, an earthquake and a fire are correlated but only a fire is causally related to an earthquake.
There is therefore higher economic capital ...
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