What is asset correlation?

Asset correlation is a measure of how investments move relative to one another. When assets move in the same direction at the same time, they are considered to be positively correlated. When one asset tends to move up when the other goes down, the two assets are considered to be negatively correlated.

What is an example of a near non-correlated asset?

In the real world most assets have some correlation; so a low asset correlation such as between gold and S&P stocks, would be a good example of near non-correlated assets. When two or more investments move inversely to each other they have negative correlation.

What does it mean if two assets are perfectly correlated?

For example, two assets with a correlation of +1.0 are perfectly correlated, meaning they always move in the same direction at roughly the same percentage. And if two assets are -1.0, it means they’re perfectly negatively correlated. They’ll always move in opposite directions at the same amount.

What happens if assets are negatively correlated?

When assets negatively correlate, they tend to move in opposite directions. More strongly negatively correlated assets will be further apart from each other. For example, if two assets have a perfect negative correlation, when one gains 5% in the market, the other will lose 5%.