The similarity of assets, or correlation, is a statistical measure on how the two securities move in relation to each other. Correlation is computed into what is known as the correlation coefficient, which ranges between -1 and +1.

• 1 indicates a strong positive relationship between securities and implies that as one security moves, either up or down, the other security will move in lockstep in the same direction.
• -1 indicates a strong negative relationship and implies that as one security moves, either up or down, the other security will move in locktep in the opposite direction.
• A result of zero indicates no relationship at all. ### How to calculate?

For calculating correlations between any two assets you can use the formula below: Where:

• is each x-value minus the mean of x (called “a” above)
• is each y-value minus the mean of y (called “b” above)

For the easiest calculating asset of correlations, you can use our calculator.

## Examples

#### Examples of Positive Correlations

• The more time you spend running on a treadmill, the more calories you will burn.
• Taller people have larger shoe sizes and shorter people have smaller shoe sizes
• The longer someone invests, the more compound interest he will earn.
• The longer amount of time you spend in the bath, the more wrinkly your skin becomes.
• As it snows more, the sales for deicers go up.
• As you drink more coffee, the number of hours you stay awake increases.
• As a child grows, so does his clothing size.
• As her salary increased, so did her spending.

#### Examples of Negative Correlation

• A student who has many absences has a decrease in grades.
• As weather gets colder, air conditioning costs decrease.
• If a train increases speed, the length of time to get to the final point decreases.
• As a bikers speed increases, his time to get to the finish line decreases.
• As the slope of a hill increases, the amount of speed a walker reaches may decrease..
• The more vitamins one takes, the less likely one is to have a deficiency.
• The more iron an anemic person consumes, the less tired one may be.