Correlation

A statistical measure ranging from -1 to +1 that describes how two assets move relative to each other. A correlation of +1 means they move in perfect lockstep; -1 means they move in exactly opposite directions; 0 means no relationship. Portfolio managers use correlation to build diversified portfolios, seeking assets that are uncorrelated or negatively correlated. The problem is that correlations tend to spike toward +1 during market crises -- exactly when diversification is needed most.