Documentation
Correlation
Use the correlation matrix to understand whether positions truly diversify each other or simply move together.
What correlation means
Correlation compares how two return series move relative to each other over time.
A reading close to 1 means two assets tend to move in the same direction. A reading close to -1 means they often move in opposite directions. A reading close to 0 means their movements do not show a strong linear relationship.
Important
Reading the scale
Use broad ranges instead of treating every decimal change as a meaningful decision signal.
0.80 to 1.00
Strong positive correlation
0.30 to 0.79
Moderate positive correlation
-0.29 to 0.29
Weak or no meaningful correlation
-0.79 to -0.30
Moderate negative correlation
-1.00 to -0.80
Strong negative correlation
How to use it in a portfolio
Correlation is most useful when you compare it with position sizes, sector exposure, and concentration risk.
- Look for clusters of highly correlated positions that may behave like one trade.
- Review correlation after rebalances, not only when opening a new position.
- Do not assume international diversification is real if correlations remain high.
Practical rule