Concept

Correlation

How closely two investments move together, from +1 (always in step) to −1 (always opposite). Holdings with low correlation to each other give a portfolio real diversification.

Why we track it

Correlations tend to rise in a crisis, when many things fall together. Owning many holdings only helps if they don’t all move as one.

Asset allocationHow a portfolio is split among kinds of investments, such as stocks, bonds and cash.
BacktestingTesting an investing rule on historical data to see how it would have performed before putting money behind it.
Basis pointOne hundredth of a percentage point (0.01%), often written bp.
Bear marketA fall of roughly 20% or more from a recent peak, usually over several months.
Bull marketA long stretch of rising prices across a market, often dated from a 20% rise off a low.
Business cycle stagesThe economy’s long rise and fall: years of growth, a slowdown, sometimes a recession, then recovery.

Why we track it

Related terms