Correlation of Returns

• Correlation is the relative movement of asset returns measured on a scale of -1 to +1.
• +1 is perfect positive correlation. It indicates that two assets move in lockstep.
• -1 is perfect negative correlation. It indicates that two assets move in opposite directions by the exact same amount. When one goes up the other goes down by the same amount and vise versa.
• 0 correlation indicates that the relative movement of two assets is totally random.
• The lower the degree of correlation the greater the diversification provided.

• Correlation
• Portfolio Diversification