how is the correlation coefficient used in investing 
correlation coefficients play a key role in portfolio risk assessments and quantitative trading strategies for example some portfolio managers will monitor the correlation coefficients of their holdings to limit a portfolio s volatility and risk the bottom linethe correlation coefficient describes how one variable moves in relation to another a positive correlation indicates that the two move in the same direction with a value of 1 denoting a perfect positive correlation a value of 1 shows a perfect negative or inverse correlation while 0 means no linear correlation exists 