Correlation Matrix Calculator

Correlation matrix shows correlation coefficients between all asset pairs in portfolio. Values range from -1 to +1. Perfect positive correlation = +1, perfect negative correlation = -1, no correlation = 0. Essential for portfolio diversification analysis.

Correlation heatmap uses colors to represent correlation strength. Red indicates strong positive correlation, blue shows negative correlation, white means no correlation. Darker colors represent stronger relationships. Diagonal is always 1.0 (perfect self-correlation).

Low correlations (0 to 0.3) provide best diversification benefits. Moderate correlations (0.3 to 0.7) offer some diversification. High correlations (0.7+) provide limited diversification. Negative correlations are excellent for hedging strategies.

Pearson measures linear relationships, assumes normal distribution. Spearman measures monotonic relationships, works with any distribution. For financial data with outliers and non-normal distributions, Spearman often more robust and appropriate.

Correlations are not stable over time. They increase during market stress (correlation breakdown). Bull markets show lower correlations, bear markets show higher correlations. Recalculate quarterly or after major market events for accuracy.

Rolling correlation uses moving time windows to show how relationships change over time. Common periods: 30-day, 60-day, 252-day (1-year). Helps identify regime changes and correlation instability. Critical for dynamic portfolio management.