As we have seen, for diversification to work there
cannot be a perfect correlation between the returns
on different assets. When one is down, the other
must be up  and vice versa.
What is correlation? It is a statistical measure
of the relationship between series of numbers
 such as financial returns. Before considering
an example of the effects and benefits of diversification,
we should define some terms 
 Correlation coefficient (or covariance)
is a measure  from +1 to 1  that measures
the degree of the relationship, or correlation,
between two series.
 Positive correlation means that two
series tend to move in the same direction 
when one goes up, the other goes up; when one
goes down, the other goes down. This means the
correlation coefficient is positive. If the
series is perfectly positively correlated
the coefficient is +1. For example, you and
your shadow are perfectly positively correlated.
 Negative correlation means that two
series move in opposite directions  when one
goes up, the other goes down; and viceversa.
If two series are perfectly negatively correlated,
the coefficient is 1. For example, when you
clap your hands their motion is perfectly
negatively correlated  we hope.
 Uncorrelated series lack an interaction
between their returns  when one goes up, the
other might go up or might go down. The correlation
coefficient is zero.

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