In the world of finance, correlation is a statistical measure of how two securities move in relation to each other. Correlations are used in advanced portfolio management. PZ Correlation indicator measures how different securities move in relation to a reference one, thus making portfolio management easier.
- 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 correlation between two securities is measured by a correlation coefficient.
- 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
Arturo López Pérez, private investor and speculator, software engineer and founder of Point Zero Trading Solutions.