Risk & Portfolio

Correlation

A statistical measure of how two assets have moved in relation to one another.

Plain-English context

Put the definition to work.

ILLUSTRATIVE EXAMPLE

Two assets can have positive historical correlation even if they move in opposite directions on a particular day. The period and return sampling affect the estimate.

IMPORTANT DISTINCTION

Zero correlation does not prove independence. Estimates can change with the sample, nonlinear relationships and stressed markets.

Further reading and verification. Examples are hypothetical, not current quotes or recommendations. Product terms, tax treatment and market rules can change. Investor.gov — asset allocation and diversification

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