What is the Benefit of Diversification?
1 / 4
What is Correlation?
2 / 4
3 / 4
4 / 4
Asset Correlation
Correlations Change
Negative Correlation
Positive Correlation
Correlation measures the relationship between two or more securities. A positive correlation means that the securities being measured are moving together, while a negative correlation means they are moving opposite.
Correlations are not constant and will change overtime. The chart to the left shows the relationship between Gold and 20 Year Treasuries over a 6-month time frame. Notice they exhibit a random correlation (no relationship).
Now, for a different 6-month time frame, the Gold and Treasuries are negatively correlated. They are moving in a complete opposite direction from one another.
Lastly, this chart shows a positive relationship between Gold and Treasuries. They are moving in lockstep.