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Correlation Definition

Correlation measures how closely the price movements of two assets are related to each other.

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What is Correlation?

A correlation of +1 means two assets move perfectly together, while -1 means they move in exactly opposite directions.

Correlation is used in risk management and diversification to understand how positions may behave relative to one another.

Example of Correlation

Two currency pairs that consistently rise and fall together would show a strong positive correlation.

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