PortWhat Is Correlation?
A measure of whether two instruments move in the same direction.
Explanation
It ranges from −1 to +1. A value close to +1 means the instruments tend to rise and fall together; close to 0 means their movements are independent; and a negative value means they move in opposite directions.
High correlation between positions means the portfolio is less diversified than the number of companies might suggest. It's worth remembering that correlations tend to increase during market panics—precisely when diversification would be most needed.
Example
Two mining companies have a correlation of 0.85. Holding both offers little more diversification than holding one at double the size.
Related Terms
See Live Correlation
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Portevo is not an investment advisor. The data and analyses are for informational and educational purposes only and do not constitute a recommendation or an offer to buy or sell financial instruments. Quotes are from external providers and may be delayed. You make investment decisions at your own risk.
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