How Can You Calculate Correlation Using Excel? Correlation is a statistical relationship that measures how related the movement of one variable is compared to another variable. For example, stock prices fluctuate over time and are correlated accordingly or inversely to one another. Understanding stock correlation and being able to perform analysis are very helpful in managing a stock portfolio investment. Understanding correlation and its applications in stock investing The most familiar correlation measure is the Pearson product-moment correlation coefficient. The strength of the relationship between two variables is expressed numerically between -1 and 1. For example: Two stocks are positively correlated when their prices always go up or go down together. Their coefficient is between (0, 1]. Two stocks are negatively correlated when one's price goes up while the other goes down or vice versa. Their coefficient is between [-1, 0). Two stocks are uncorrelated if their prices fluctuate independently of each other. Their coefficient is then 0. In stock investing, from the historical prices of stocks, investors can compute the correlations between them in the past and predict their relationships in the future. Based on historical correlations of one stock with a market index or a commodity in terms of price, an investor might predict whether the stock will go up or go down in response to a change related to the index or the commodity. Based on historical correlations of stocks, an investor might reduce risk by diversifying a portfolio with stocks that are not highly correlated.