Measure

Correlation

The degree to which two return series move together, from −1 to +1. Formula: ρ = cov(x, y) / (σ_x σ_y).

Definition

The degree to which two return series move together, from −1 to +1.

Formula

ρ = cov(x, y) / (σ_x σ_y)

How to read it

Low pairwise correlation is the mechanical basis of diversification benefit.

Measured on real funds

Correlation of monthly returns with VTI. A fund can track it closely and still move further in each direction, which is what beta adds.

Fund	Correlation vs VTI	Sample
VOO	1	192 shared months
VT	0.96	219 shared months
VIG	0.95	244 shared months
VUG	0.95	272 shared months
VTV	0.94	272 shared months
VGT	0.89	272 shared months
QQQ	0.88	303 shared months
VEA	0.88	230 shared months
XLK	0.87	303 shared months
VXUS	0.84	188 shared months
SCHD	0.84	179 shared months
SMH	0.77	303 shared months
VWO	0.74	258 shared months
BND	0.26	233 shared months
AGG	0.23	276 shared months

Computed from Yahoo Finance monthly total return, recomputed with every update of the site. How these figures are produced. Run it on your own funds — free, no account.

What it does not tell you

It captures linear co-movement only, and it is not stable. Correlations between risk assets tend to rise toward 1 during severe selloffs — precisely the moment the diversification was supposed to pay.

Applied in 60 articles

Every figure computed with this measure on this site follows the conventions set out in the methodology. All measures →