correlation

A measure of how closely the returns of two investments mimic each other. If two assets have a correlation of 1.0, their returns move in lockstep in the same direction. If two assets have a correlation of 0.0, there is no linear relationship between the two assets, and if two assets have a correlation of –1.0 they move in the opposite direction to the same degree. During periods of market distress, correlations tend to rise. Correlation among assets is viewed by investors to help build diversified portfolios that minimize risk.