Correlation of Returns Calculator
How Closely Do Two Investments Move Together?
Diversification only works if the assets in a portfolio don't all fall on the same day. The Pearson correlation coefficient measures exactly that — a single number between -1 and 1 that describes how closely two return series track each other over time. A correlation near 1 means the two assets rise and fall in lockstep; near -1 means they move in opposite directions; near 0 means their movements are essentially unrelated. Feeding in raw historical returns rather than eyeballing a chart turns that judgment call into an exact figure.
The Formula
The calculator computes the standard Pearson correlation coefficient from two paired return series:
The numerator is the covariance between the two series; the denominator normalizes it by each series' own variance so the result always falls between -1 and 1, regardless of the scale of the returns.
Where This Matters
- Building a diversified portfolio — pairing assets with low or negative correlation reduces overall portfolio volatility more effectively than simply adding more holdings.
- Checking a hedge — a position intended to offset another only works if the correlation is reliably negative; this calculator quantifies that relationship instead of assuming it.
- Spotting hidden concentration — two funds with different names and different sectors can still carry a high correlation if they're both driven by the same macro factor.
| Period | Asset A return | Asset B return |
|---|---|---|
| 1 | 2.1% | 1.8% |
| 2 | -1.4% | -0.9% |
| 3 | 3.0% | 2.5% |
| 4 | 1.2% | 0.9% |
| 5 | -0.5% | -0.3% |
| 6 | 2.8% | 2.2% |
This series produces a correlation coefficient of 0.998 — the two assets move almost identically, so pairing them adds little diversification benefit.
Interpreting the Result
| Coefficient range | Relationship |
|---|---|
| 0.7 to 1.0 | Strong positive |
| 0.3 to 0.7 | Moderate positive |
| -0.3 to 0.3 | Weak or no relationship |
| -0.7 to -0.3 | Moderate negative |
| -1.0 to -0.7 | Strong negative |
How to Use This Calculator
- Enter Asset A's returns as a comma-separated list (e.g.
2.1,-1.4,3.0). - Enter Asset B's returns as a comma-separated list, with the same number of values and matching periods.
- Select Calculate to get the correlation coefficient and a plain-language description of the relationship.
Related Calculations
Once you know how two holdings correlate, use the Portfolio Beta Calculator to see how the combined position behaves against the broader market, or the Sortino Ratio Calculator to weigh returns against downside risk specifically.