The correlation coefficient ranges from -1 to +1. A value of +1 means the two prices have moved in the same direction all the time, -1 that they have always moved in opposite directions, and 0 that there has been no relationship between them. Readings above 0.7 or below -0.7 are usually considered strong, and readings between -0.3 and +0.3 weak. A low correlation between your holdings means more diversification and usually a smoother portfolio, while a high correlation between two stocks of the same industry can point to a pairs trading opportunity. Correlation is not stable, so check it over several periods, for example 30, 90 and 250 days.
It calculates the correlation coefficient of two symbols, such as two stocks, a stock and an ETF, two forex pairs or two cryptocurrencies, over the number of days you choose.
It is calculated from the daily closing prices of the two symbols over the selected period, from 5 to 450 days. The result ranges from -1 to +1.
The lower the correlation between two holdings, the more they diversify each other. Assets with a correlation close to zero or below zero add the most diversification, while assets with a correlation above 0.7 tend to move as one.
Yes. Pairs trading starts with two highly correlated stocks, often companies of the same industry. When their prices drift apart, traders buy the weaker stock and sell the stronger one short, expecting the gap to close.
Correlation depends on the market conditions of the period you select. Two stocks can move together for a month and drift apart over a year, so compare several periods, for example 30, 90 and 250 days.
Yes. Enter two currency pairs, such as EURUSD and GBPUSD, or two cryptocurrencies, such as BTC.CR and ETH.CR, the same way as stocks.
Use the Stock Correlation tool: enter a symbol, and it ranks all the stocks and ETFs of its market by their correlation with it.
Yes. The Correlation Calculator is free, and you do not need to sign up. Enter any two stocks, ETFs, forex pairs or cryptocurrencies and the number of days.
