In the world of finance, correlation is an statistical measure of how two securities move in relation to each other. Correlations are used in advanced portfolio management.
- Avoid concurrent trades in highly correlated instruments
- Find trading opportunities among highly correlated instruments
- Correlation is positive when two securities rise in price together
- Correlation is negative when one security increases and the other decreases
The PZ Correlation indicator measures of how different securities move in relation to a reference one, thus making portfolio management easier.
- A coefficient of zero is neutral correlation
- A coefficient of 0.3 is low positive correlation
- A coefficient over 0.8 is high positive correlation
- A coefficient of -0.3 is low negative correlation
- A coefficient over -0.8 is high negative correlation