In Depth: Correlation…. by Don Fishback

Correl2 Small In Depth: Correlation…. by Don Fishback

Correlation: In statistics, it’s the degree to which two or more variables show a tendency to move relative to each other.  In finance, it’s the tendency of two or more securities, sectors or asset classes to move together.

Correlation values range from -1 to +1.  If one stock moves in perfect lockstep with another, the correlation is going to be +1.  If they move exactly opposite one another, the correlation is going to be -1.

Needless to say, a perfect correlation of + or -1 is nearly impossible.  But recently, we’ve seen a few examples where correlations have climbed to unusually high levels.  The correlations I’m speaking of are the various Sector SPDRs and the S&P 500 SPDR.

Continued at Don Fishback’s Market Update


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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