Plain-English definitions, reviewed by an independent investor
Correlation
Correlation measures how two assets move together, from −1 (opposite) to +1 (lockstep).
Correlation measures how two assets move together, from −1 (opposite) to +1 (lockstep).
Correlation = Covariance(X,Y) ÷ (StdDev(X) × StdDev(Y))
Why it matters
It is the maths behind real diversification — low or negative is the goal.
Common confusion
Correlations rise in crises when you most want them low, a known trap.
Frequently Asked Questions
Negative correlation good?
Yes, it smooths the ride because one zigs as the other zags.
Correlation 1?
They move together perfectly; combining them adds no diversification.