C

Glossary · PSX term

Correlation.

Correlation measures how closely two investments tend to move together.

Definition

Assets with high positive correlation rise and fall together, offering little diversification, while low or negative correlation helps smooth a portfolio. PSX stocks in the same sector are often highly correlated.

Worked example

Two banks may be highly correlated, so holding both adds less diversification than mixing a bank and a fertiliser stock.

Related on PSX Clarity

Diversification

Concentration risk

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