DEFINITION of 'Inverse Correlation'
A contrary relationship between two variables such that they move in opposite directions. In an inverse correlation with variables A and B, as A increases, B would decrease; as A decreases, B would increase. In statistical terminology, an inverse correlation is denoted by the correlation coefficient r having a value between 1 and 0, with r = 1 indicating perfect inverse correlation.
Also known as negative correlation.
INVESTOPEDIA EXPLAINS 'Inverse Correlation'
In financial markets, the best example of an inverse correlation is probably the one between the U.S. dollar and gold. As the U.S. dollar depreciates against major currencies, gold is generally perceived to rise, and as the U.S. dollar appreciates, gold declines in price.
Two points need to be kept in mind with regard to negative correlation. First, the existence of negative correlation (or positive correlation, for that matter) does not necessarily imply a causal relationship. Second, the relationship between two variables is not static and will fluctuate over time, which means that they may display an inverse correlation during some periods and a positive correlation during others.

Negative Correlation
A relationship between two variables in which one variable increases ... 
Positive Correlation
A relationship between two variables in which both variables ... 
Statistically Significant
The likelihood that a result or relationship is caused by something ... 
Correlation Coefficient
A measure that determines the degree to which two variable's ... 
Correlation
In the world of finance, a statistical measure of how two securities ... 
Credibility Theory
Tools, policies, and procedures used by actuaries when examining ...

Investing Basics
Diversification Beyond Stocks
If you think holding several stocks means you're diversified, think again  there's much more to be done to reduce portfolio risk. 
Forex Education
How To Trade Currency And Commodity Correlations
Relationships between currencies and commodities exist throughout the financial markets. Find out how to trade these trends. 
Forex Education
Using Currency Correlations To Your Advantage
Knowing the relationships between pairs can help control risk exposure and maximize profits. 
Insurance
The Dangers Of OverDiversifying Your Portfolio
If you diversify too much, you might not lose much, but you won't gain much either. 
Active Trading
Modern Portfolio Theory: Why It's Still Hip
See why investors today still follow this old set of principles that reduce risk and increase returns through diversification. 
Professionals
How do companies measure labor supply in human resources planning?
Find out how and why a company's human resources department would measure labor supply, and what policies would address a shortage or surplus. 
Fundamental Analysis
Why are OTC (overthecounter) transactions controversial?
Learn more about overthecounter transactions, and why OTC traders are considered riskier than traders working with larger market exchanges. 
Fundamental Analysis
What is the difference between cost of equity and cost of capital?
Read about some of the differences between a company's cost of equity and its cost of capital, two measures of its required returns on raised capital. 
Fundamental Analysis
What is arbitrage pricing theory?
Find out what arbitrage pricing theory is and how it can theoretically be used by investors to generate riskfree profit opportunities. 
Fundamental Analysis
What does a high weighted average cost of capital (WACC) signify?
Find out what it means for a company to have a relatively high weighted average cost of capital, or WACC, and why this is important to lenders and investors.