Finding Correlation response in fourier domain
From my understanding, the more spread out, or the less dense the power spectrum is over a set number of frequency bins, the less correlated the two signals are, and vice versa.


I'm afraid you have this backward. Narrow peaks in the original (spatial) domain correspond to strong cross-correlations. Narrow peaks in the spatial domain will be relatively spread out in the Fourier domain. The results of the cross-correlation are usually interpreted in the spatial domain (rather than the Fourier domain). 

Transform the image and the (zero-padded) template, multiply in the Fourier domain, and then transform back to the spatial domain. Peaks in the spatial domain correspond to (the possibility of) matches between the template and the image.