Correlation
Asset correlation is a measurement of the relationship between two or more assets and their dependency. This makes it an important part of portfolio asset allocation where the goal is to combine different asset types that don’t move up and down together to reduce overall portfolio volatility and risk. The correlation measurement (R) is expressed as a number between +1 and -1. A zero correlation indicates there is no relationship between the assets. A +1.00 indicates an absolute positive correlation (they always move together in the same direction). A -1.00 indicates an absolute negative correlation (they always move together in opposite directions of each other). |