tasty Extras

What is Correlation?

tasty Extras

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Correlation can be used to determine the price relationship between two assets or portfolio positions.

The correlation number can be classified into three main buckets: positive (above +0.5), negative (below -0.5) or near-zero (between -0.5 and +0.5).

Since assets/positions with a near-zero correlation move randomly with respect to one another, we consider them ideal for diversifying a portfolio as it makes the portfolio more “random”.

In today's Market Measures, we will show you how using options can help you achieve this goal much easier than using stocks.

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