Learn the terms · Longer read
Correlation: how much two things move together
How much two things move together, on a scale from +1 (lockstep) through 0 (unrelated) to -1 (opposite). Owning things with low correlation to each other is what actually spreads risk; ten stocks that all move together are one bet with ten names.
What it measures
Line up two price series day by day and ask: on the days one rose, did the other tend to rise too? Correlation is the answer as a single number. Near +1, they move together almost every day. Near 0, knowing what one did tells you nothing about the other. Near -1, one tends to rise when the other falls. Two iron-ore miners on the same exchange will sit high; a miner and a supermarket chain will sit lower; a miner and a long government bond have often sat near zero or below.
Trendentum computes it over the history the two series share - the sector map says how many trading days that was - between each sector's index and your holdings combined at today's weights - not the day-by-day value your book actually had as you bought and sold. Only sectors with an index get a figure. So the figure is not "how does Energy move against the market" but "how has Energy moved against what I own now", which is the question that matters for spreading anything.
Why it is what diversification means
Holding more stocks only spreads risk if they do not all fall together. A portfolio of ten resource companies is diversified in name and concentrated in fact; when the commodity turns, so do all ten. The protection in owning several things comes from the days they disagree - one holding's bad day landing on another's ordinary one - and correlation is the measure of how often that happens.
This is why the sector map has a "Moves with your book" column and puts it beside the sector's own trend. A sector trending up is one fact; a sector that has moved least like your existing holdings is a different fact; the two together are what a question about spreading risk needs. Which of those sectors, if any, belongs in your portfolio is not something the map answers, and it says so on the page.
What it is not
Correlation is not stable. Assets that moved independently in calm markets have a habit of falling together in a crisis, when everything is sold at once - the diversification that was there in the average disappears on the day it is needed most. A figure computed over the last year describes the last year. It is also not causation: two things can move together because a third thing moves both.
Nor does a low correlation make something a good holding. It makes it a different holding. Trendentum reads the relationship and shows it next to the sector's own trend and momentum; the weighing is yours.
An example
A book holds six stocks: four miners, a mining-services company and a gold producer. The sector map reads its correlation with Basic Materials at 0.94 - the book is, in effect, that sector. Energy comes in at -0.17 and Consumer Defensive at -0.14 over the same 219 trading days: on the days the book fell, those two sectors more often than not did something else. Healthcare is trending up hardest but correlates at 0.6. The map puts all of that in one row per sector and answers none of the questions it raises; that is the design.
Where you’ll see it on Trendentum
- The sector map's "Moves with your book" column, per sector with an index, in each market
- The sentence at the top of the sector map, naming the sectors that moved least like your holdings
- The investing principles page, on spreading risk
Every term on this page is used the same way across the app, and the exact thresholds behind each rule are on the methodology page. Trendentum explains every call and never tells you what to do with it.