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CORRELATION

Do positions move together.

Published by The Retail Trader · JUL 31, 2026 · Risk Management

Correlation — Movement of two positions together. Taking five bank stocks is not diversification, it is a hi bet five times.

WHERE THIS FITS IN

This term comes under Risk Management, in the section “PORTFOLIO RISK”. Holding several positions together brings new kinds of risk:

RELATED TERMS TO READ

Other terms in this group — understanding them together is more useful:
• Diversification
• Concentration Risk
• Beta
• Systematic Risk
• Unsystematic Risk
• Overnight Risk / Gap Risk
• Event Risk
• Black Swan
• Liquidity Risk

To read the entire group and all its examples at one place, see the journal "RISK MANAGEMENT: DICTIONARY OF AVOIDANCE" - this term has been taken from there.

This entry is for educational purposes only and is not a recommendation to buy or sell. Exchanges change charges, margins, lot sizes and expiry rules from time to time, so verify any figures with your broker or exchange.

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