Correlation

A measure of how two assets move in relation to each other, from -1 to +1.

Correlation ranges from -1 (perfect inverse relationship) to +1 (perfect positive relationship), with 0 meaning no relationship. Portfolio diversification relies on combining assets with low or negative correlation to reduce overall risk. During market crises, correlations between risky assets often spike toward 1.

Gold often has low correlation with stocks, so it can cushion a portfolio when equities fall.