Correlation Matrix

The essential tool to verify true portfolio diversification and avoid risk concentration.

Interactive Playground

-1.00+1.00

0.0

Uncorrelated

Asset A

Asset B

Observe how Asset B moves relative to Asset A based on the correlation coefficient.

Understanding the Coefficient

+1.0

Perfect Positive Correlation. Assets move exactly in the same direction.

0.0

No Correlation. The movement of one asset does not predict the other (Ideal diversification).

-1.0

Perfect Negative Correlation. Assets move in opposite directions (Hedging).

Why is it critical?

If all your assets have a correlation of +0.8 or higher, you are not diversified, even with 20 different positions. In a crash, everything will fall together.

Healthy Diversification

Aim to mix correlated assets (e.g. Tech Stocks) with uncorrelated ones (Gold, Bonds, Real Estate, Crypto) to smooth out your portfolio equity curve.

Reading Example

BTC / ETH (0.85) :High correlation. Expected, as both are major cryptocurrencies.
S&P500 / Gold (0.10) :Low correlation. Gold does not necessarily follow US stocks. Good diversification.
USD / EUR (-0.40) :Inverse correlation. When USD rises, EUR tends to fall (and vice-versa).