Glossary term
Correlation
A statistical measure of how two assets move together, from -1 to +1; the foundation of cross-asset and pair-trade analysis.
Correlation is a statistical measure of how two assets move in relation to each other, ranging from +1 (move identically) through 0 (no relationship) to -1 (move oppositely). It is the foundation of cross-asset regime analysis and pair-trade construction, but it captures only short-run co-movement, not the long-run equilibrium that cointegration identifies. Correlations notoriously rise toward 1 in a crisis, when diversification fails just as it is most needed. See Cascade Tracker 101.