If you invest in two stocks, and their values both rise on one day and then fall on the next day, they have __________.
a large covariance
If two stocks rise on the same day and fall on the next day, then they have a positive correlation. Positive correlation refers to the relationship between two variables where they both move in the same direction. This means that when one variable (in this case, the stock values) increases, the other variable (the other stock value) also increases, and when one decreases, the other decreases as well. A positive correlation between two stocks means that their values tend to move together, which can increase the diversification of a portfolio and minimize the overall risk of an investment. However, it is also important to consider other factors, such as industry-specific risks, economic indicators and the stock’s financial performance before making investment decisions.
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