Correlation
Statistical measure of co-movement between assets
What is Correlation?
Correlation A statistical measure ranging from -1 to +1 that describes how two assets move in relation to each other. A correlation of +1 means they move perfectly together; -1 means they move exactly opposite; 0 means no linear relationship. Understanding correlation is essential for hedging, diversification, and constructing multi-leg options portfolios.
Complete Definition
A statistical measure ranging from -1 to +1 that describes how two assets move in relation to each other. A correlation of +1 means they move perfectly together; -1 means they move exactly opposite; 0 means no linear relationship. Understanding correlation is essential for hedging, diversification, and constructing multi-leg options portfolios.
Example
SPY and QQQ have ~0.90 correlation. An SPY put hedge also partially hedges a QQQ position.
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