Correlation, in the finance and investment industries, is a statistic that measures the degree to which two corrélation Forex move in relation to each other. Correlation is a statistic that measures the degree to which two variables move in relation to each other.

In finance, the correlation can measure the movement of a stock with that of a benchmark index, such as the Beta. A perfect positive correlation means that the correlation coefficient is exactly 1. This implies that as one security moves, either up or down, the other security moves in lockstep, in the same direction. 500 Index – very close to 1. Small-cap stocks have a positive correlation to that same index, but it is not as high – generally around 0.

However, put option prices and their underlying stock prices will tend to have a negative correlation. As the stock price increases, the put option prices go down. This is a direct and high-magnitude negative correlation. Investment managers, traders and analysts find it very important to calculate correlation, because the risk reduction benefits of diversification rely on this statistic. There are three steps involved in finding the correlation. The offers that appear in this table are from partnerships from which Investopedia receives compensation. An inverse correlation, also known as negative correlation, is a contrary relationship between two variables such that they move in opposite directions.