Correlation measures how two assets move relative to each other, ranging from -1 (perfectly opposite) to +1 (perfectly together). Stocks and bonds historically had low or negative correlation, making them complementary in portfolios. US and international stocks correlate around 0.7-0.85, providing some diversification benefit. During crises, correlations often spike toward 1 ('correlations go to one') — diversification breaks down precisely when needed. Adding uncorrelated or negatively correlated assets (gold, certain alternatives) reduces portfolio volatility. Calculate rolling correlations rather than long-term averages; relationships change over time as economic regimes shift.
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Correlation
August 22, 2026 · Aditya Gupta
Investing
Related terms
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