# High correlation between two independent variables, but no multicollinearity?

I have two independent variables which have a Pearson correlation coefficient of 0.98.

The two independent variables measure the same underlying construct but only at two different points in time (one is a forecast, the other the actual realization). The VIF is around 25 - however, if I replace one variable with the incremental change to the other variable, I basically get the same information from the coefficients (just a base coeff. and an incremental value), but VIF is around 1 and multicollinearity is gone? Does that automatically mean that the initial regression has no multicollinearity problem?

• Your "trick" is frequently used to approximately decorrelate covariables. You had strong collinearity in your initial and very different model (compare the slopes between the two models. They will be very different!). Apr 25 '15 at 8:30
• I think the slopes are not really different, just the interpretation of the coefficents or? - see comment below Apr 25 '15 at 14:59