TRADING GLOSSARY

Correlation: how assets move in relation to each other

Correlation measures how closely two assets move together. A correlation of +1 means they move in perfect lockstep. A correlation of -1 means they move in perfectly opposite directions. A correlation of 0 means their movements are unrelated.

Common correlations

Gold and USD: Typically negatively correlated — when the dollar strengthens, gold often falls. Oil and energy stocks: Strongly positively correlated — when oil rises, energy companies profit and their stocks rise. US stocks and bonds: Usually negatively correlated — when stocks fall, investors flee to bonds, pushing bond prices up. EUR/USD and USD/CHF: Strongly negatively correlated due to both being USD pairs.

Why correlation matters

If you hold three positions that are all highly correlated (e.g., Apple, Microsoft, and the Nasdaq index), you effectively have one big position. A decline in tech stocks hits all three simultaneously. Diversification requires holding assets with low or negative correlation so that losses in one position are offset by gains in another.

Correlations are not constant — they change over time and often increase during market stress (when “everything falls together”). AskTrade’s research reports include correlation analysis relevant to the asset you are researching.

Disclaimer: This is for educational purposes only and does not constitute financial advice. Trading involves significant risk of loss.

Experience Multi-Agent Research

12 AI agents collaborate to deliver institutional-quality analysis. Try it from $2.

Start Trading →

AskTrade analyses are AI-generated and do not constitute financial advice.