Correlation Coefficient
Definition
A statistical measure ranging from −1 to +1 showing the degree and direction to which two assets move together. +1 = perfect positive correlation, −1 = perfect negative, 0 = no relationship.
Formula / Rules
r = Σ(Xi − X̄)(Yi − Ȳ) / √[Σ(Xi − X̄)² · Σ(Yi − Ȳ)²]
Example
S&P 500 and gold often have a low or negative correlation, making gold valuable for portfolio diversification.
Related Terms
Frequently Asked Question
What is the Correlation Coefficient?
Correlation coefficient (−1 to +1) measures how two assets move together. Portfolio construction uses low or negative correlations to reduce risk through diversification.
APA Citation
Last updated:
· Source: VixShield Trading Glossary — From SPX Mastery by Russell Clark
⚠️ Not financial advice. This definition is educational content from the SPX Mastery book series by Russell Clark (VixShield). Past performance is not indicative of future results. Trading options involves substantial risk of loss and is not appropriate for all investors. Always paper trade before risking real capital.