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Finance Dictionary and Glossary of Investment Terms
Correlation
Definition 1.
Statistical measure of the degree to which the movements of two variables (stock/option/convertible prices or returns) are related. See: Correlation coefficient.
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Definition 2.
A complementary or parallel relationship between two securities.
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Definition 3.
A relationship between two variables.
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Definition 4.
A measure of how closely two variables move together through time. For example, all utility stocks tend to have a high degree of correlation because the same forces influence their share prices. Conversely, gold stock prices are not closely correlated with utility stock prices because the two are influenced by very different factors. Thus, in building a diversified portfolio, investors often try to combine investments that aren''t closely correlated with one another.
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