In statistics, a correlation is a relationship between two variables so that each value of the first corresponds to a value of the second, following a certain regularity. This relationship is evaluated with a number that varies between 1 (when there is maximum correlation) and -1 (when there is maximum inverse correlation).
Two assets with correlation 1 are such that the movement of an asset corresponds to a similar movement and in the same direction as the other. In the same way two assets with correlation -1 are such that the movement of an asset corresponds to a similar movement but in the opposite direction of the other. Two assets are said to be uncorrelated when they have a 0 correlation, in this case the movements of the two assets are independent of each other.
The correlation matrix is composed of a grid in which for each pair of assets the correlation is shown in numeric format, and a graph showing a point for each pair, distributed between 1 and -1.
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