Investing Dictionary
Risk

What is Correlation?

How closely two investments move together

Full Explanation

Correlation of +1 means two assets move perfectly together. -1 means they move in opposite directions. 0 means no relationship. True diversification means owning assets with low correlation.

Pro Tip

Gold and stocks often have low correlation — that's why investors hold both.

Related Risk Terms

Black Swan

A rare, unpredictable event that causes massive market disruption

Concentration Risk

Too much money in one stock, sector, or asset type

Counterparty Risk

The risk that the other side of a deal can't hold up their end

Diversification

Not putting all your eggs in one basket

View all Risk terms →

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