Correlation measures how two things tend to move together. For investments it is summarized by a single number, the correlation coefficient, which always sits between −1 and +1.
+1 means the two move in perfect lockstep: when one rises, the other rises proportionally. 0 means no linear relationship — knowing one's move tells you nothing about the other's. −1 means they move in exact opposition. Real markets almost never hit the extremes.
Two large-cap tech stocks might have a high positive correlation (they rise and fall together most days); stocks and certain government bonds have often shown low or negative correlation over long periods, though that relationship is not fixed. The coefficient is the standard Pearson correlation — the covariance of two return series divided by the product of their standard deviations — a public, decades-old statistic, not anything proprietary.
Combining holdings that are not perfectly correlated is what makes diversification work: when one zigs and another zags, the ups and downs partly cancel, so overall volatility is lower than the average of the parts. Ten stocks with near-+1 correlation give far less real risk reduction than the position count suggests — they are close to a single bet.
A crucial limitation: correlations are not constant. In a genuine market-wide panic, assets that normally diverge can suddenly fall together as investors sell everything at once. This is why correlation is a useful lens but never a guarantee. This is educational content, not investment advice.
+1 means two assets move in perfect lockstep, 0 means no linear relationship, and −1 means they move in exact opposition. Real markets sit somewhere in between and the value changes over time.
Combining holdings that are not perfectly correlated makes their ups and downs partly cancel, lowering overall portfolio volatility. Ten highly correlated stocks behave almost like a single bet despite the position count.
No. Correlations shift with market conditions and often rise toward +1 during a crisis, when many assets fall together — the moment diversification is most needed, it can help least.
Browse all S&P 500 tickers to see this metric applied to individual companies.
Educational research only — not investment advice.