DEFINITION of 'Correlation'
In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used in advanced portfolio management.
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BREAKING DOWN 'Correlation'
Correlation is computed into what is known as the correlation coefficient, which ranges between 1 and +1. Perfect positive correlation (a correlation coefficient of +1) implies that as one security moves, either up or down, the other security will move in lockstep, in the same direction. Alternatively, perfect negative correlation means that if one security moves in either direction the security that is perfectly negatively correlated will move in the opposite direction. If the correlation is 0, the movements of the securities are said to have no correlation; they are completely random.
In real life, perfectly correlated securities are rare, rather you will find securities with some degree of correlation.

Inverse Correlation
A contrary relationship between two variables such that they ... 
Negative Correlation
A relationship between two variables in which one variable increases ... 
Positive Correlation
A relationship between two variables in which both variables ... 
Correlation Coefficient
A measure that determines the degree to which two variable's ... 
Modern Portfolio Theory  MPT
A theory on how riskaverse investors can construct portfolios ... 
Covariance
A measure of the degree to which returns on two risky assets ...

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