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General TradingC
Correlation Coefficient
The Correlation Coefficient is a statistical measure ranging from -1 to +1 that quantifies the strength and direction of the linear relationship between two variables or assets. A value of +1 indicates perfect positive correlation, -1 indicates perfect negative correlation, and 0 indicates no correlation, helping traders manage portfolio risk through diversification.
Example
“The correlation coefficient between EUR/USD and GBP/USD was +0.87, indicating the two pairs moved closely together and offered limited diversification benefit.”