Correlation Indicators
Correlation indicators measure the statistical relationship between two or more assets or markets. They help traders understand how different securities move in relation to each other, enabling better portfolio diversification and pair trading strategies.
Key Characteristics
- Statistical Relationship: Measures the degree to which assets move together
- Range: Typically ranges from -1 (perfect negative correlation) to +1 (perfect positive correlation)
- Time Sensitivity: Correlations can change over different time periods
- Multi-Asset Analysis: Compares relationships between multiple securities
Common Use Cases
- Portfolio Diversification: Identify assets with low correlation to reduce risk
- Pair Trading: Find correlated assets for spread trading strategies
- Hedging: Select assets that move inversely for hedging positions
- Market Analysis: Understand relationships between related markets or sectors