Investing term
What is Correlation?
How tightly two investments tend to move together, measured from +1 (identical moves) to −1 (opposite moves).
Correlation measures how tightly two investments move together, on a scale from +1 (they move identically) through 0 (no relationship) to −1 (they move exactly opposite). It's the math behind diversification: combining assets with low or negative correlation smooths the overall ride, because they rarely fall at the same time. The catch is that correlations can spike in a crisis.
For example
Stocks and government bonds often have low correlation — in a stock crash bonds may hold or rise, which is exactly why owning both steadies a portfolio.
Correlation is taught hands-on in Stage 4 — Stocks, Bonds, Cash & Alternatives.
See the lesson →