What Is Correlation in Markets? How Asset Returns Move Together, With Real Data

Correlation in markets measures how closely two assets' returns move together, on a scale from minus 1 (opposite) through 0 (no straight-line link) to plus 1.

When people say stocks and bonds "moved together" or that gold "stopped tracking" the dollar, they are describing correlation. This page explains the scale, why it is calculated from returns rather than prices, works one example by hand, shows how the number changes with the window it is measured over, and gives real dated readings from Kresmion's cross-asset data, including more than twenty years of the stock and bond relationship. It is descriptive throughout.

The scale from minus 1 to plus 1

The number used almost everywhere is the Pearson correlation coefficient, often written r.

Correlation describes direction and consistency, not size. If one asset always moves exactly twice as much as another in the same direction, their correlation is still plus 1. The size of one asset's moves relative to another's is a different measure.

Why it is measured on returns, not prices

Correlation is calculated on returns, the daily, weekly or monthly percentage changes, not on price levels. Two prices that both trend higher for years will show a high correlation of levels even if their day-to-day moves have nothing to do with each other, simply because both lines slope up. Using returns removes the shared trend and asks the question that matters: when one moves, does the other move with it?

A worked example by hand

Take five days of returns for two assets.

Step 1, the averages. A averages +0.2 percent a day and B averages 0 percent.

Step 2, the deviations. Subtract each average from each day's return. A's deviations are 0.8, minus 2.2, 2.8, minus 0.2 and minus 1.2. B's are 0.5, minus 1, 1, 0.5 and minus 1.

Step 3, multiply and add. Multiply each day's two deviations together and add the five results: 0.4 + 2.2 + 2.8 minus 0.1 + 1.2 = 6.5.

Step 4, scale it. Divide by the square root of (the sum of A's squared deviations x the sum of B's squared deviations). Those sums are 14.8 and 3.5, so the divisor is the square root of 51.8, about 7.20. The correlation is 6.5 / 7.20 = 0.90.

The two assets moved in the same direction on four of the five days, and B's moves were smaller. The correlation of 0.90 captures the first fact and ignores the second. The figure in Step 3, before scaling, is the core of a related measure called covariance; dividing by the spreads is what puts correlation on its fixed minus 1 to plus 1 scale.

The window changes the answer

A correlation always covers a period, and changing the period changes the number. A 30-day correlation reacts quickly and moves around a great deal; a 12-month or multi-year figure is steadier but slow to show a change. Neither one is the true correlation. They answer different questions about different stretches of time.

The relationship between US stocks and long-term Treasury bonds shows how much the answer can depend on the period. Kresmion computed the correlation of daily returns between SPY, an S&P 500 ETF, and TLT, an ETF of Treasury bonds with 20 or more years to maturity, for each calendar year from the closing prices it stores.

In every calendar year from 2003 through 2021 the figure was between minus 0.71 and plus 0.05, and it was negative in 17 of those 19 years (the exceptions were 2005 and 2006, at plus 0.01 and plus 0.05), so long Treasuries tended to rise on days stocks fell. From 2022 through 2025 it was positive each year, between plus 0.06 and plus 0.13, and for 2026 through 30 September it was plus 0.38. Because TLT tracks bond prices, a positive reading means bond prices and stocks tended to rise and fall on the same days, though at plus 0.06 to plus 0.13 that link was weak. Changes in interest rates are one force often discussed, since rising yields lower bond prices and can weigh on stocks. The correlation itself does not show the cause. A Kresmion daily brief from June 2026 described a similar shift in a 30-day window.

Reading correlation on Kresmion

Kresmion's free correlation regime tracker follows 45 symbols across seven asset classes: stocks, sector funds, bonds, commodities, currencies (the dollar index), volatility and crypto. For every pair it compares the current 30-day correlation of daily returns with a baseline, the average of that 30-day figure over the trailing 252 shared trading days, and flags a break when the two differ by more than 0.40 and the correlation has also flipped sign, doubled or halved. Each pair opens a chart of its recent history.

In the snapshot dated 30 September 2026, which covered 969 pairs, some of the readings were:

Two broad stock funds sit near plus 1, and the volatility index sits far below zero against stocks, in line with its own baseline (see what the VIX is). The stock and long bond pair had more than doubled from its baseline, though the gap of 0.31 was short of the 0.40 a break needs. Bitcoin's 30-day correlation with SPY matched its baseline. These are readings on one date; the tracker updates daily, and a signed-in portfolio on Kresmion also shows its own correlation with a chosen benchmark on the Analytics tab.

Honest limitations

Correlation measures a straight-line relationship only. Two assets can be strongly linked in a curved or one-sided way, moving together only in large falls for example, and still show a low correlation. It says nothing about cause: two assets can move together because a third force, such as interest rates, moves both. A few extreme days can dominate a short window. The figure depends on the return frequency and the window chosen, as the yearly table shows. Crypto trades every day while stock markets do not, so for a crypto and stock pair Kresmion keeps only the crypto daily returns dated on stock-market sessions, and a weekend crypto move does not enter that pair; other providers may handle this differently. The yearly figures on this page use the closing prices Kresmion stores, adjusted by its data vendor, and are dividend-adjusted returns of two funds, not of the whole stock or bond market. A past correlation is a measurement, not a forecast of the next one.

Key takeaways

Frequently asked questions

What is a good correlation between two investments?

There is no good or bad number in itself; the scale only describes how two return series have moved. A reading near plus 1 means they have moved almost in step, near 0 means there was no straight-line link, and a negative reading means they tended to move in opposite directions.

What does negative correlation mean?

That the two assets have tended to move in opposite directions over the period measured: when one rose, the other more often fell. In Kresmion's data, long Treasuries and US stocks had a negative correlation of daily returns in 17 of the 19 calendar years from 2003 to 2021, then a positive one in every year from 2022.

Is correlation the same as causation?

No. A correlation shows that two return series moved together, not that one caused the other. Both can be responding to something else, such as a change in interest rates or the dollar.

Why did stocks and bonds start moving together?

Kresmion's data shows when it happened, not why. Positive stock and bond correlation is often discussed in connection with inflation and interest rate changes, which can push stock and bond prices down on the same days, but the measurement on this page does not establish a cause.

Does correlation predict future returns?

No. It describes how two assets moved over a past window. Correlations change, sometimes quickly, as the yearly table on this page shows.

This page is information, not investment advice.

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Source: Kresmion correlation regime tracker (30-day correlation of daily returns against a 252-day baseline, snapshot dated 30 September 2026), https://kresmion.com/tools/correlation-regime ; yearly SPY and TLT correlations computed by Kresmion from daily closing prices stored by Kresmion (data vendor adjusted), 2002 to 30 September 2026 ; worked example computed by Kresmion for hypothetical returns ; Kresmion daily brief, 28 June 2026, https://kresmion.com/daily-brief/2026-06-28.

Kresmion Research.