Correlation Heatmap

The Correlation Heatmap provides a visual matrix where each cell represents the correlation coefficient between two instruments.

Reading the Heatmap

• Color scale: Deep green = strong positive correlation (+1.0), white/gray = no correlation (0.0), deep red = strong negative correlation (-1.0)
• Diagonal: Always +1.0 (an instrument is perfectly correlated with itself)
• Symmetry: The matrix is symmetric - the correlation of A with B equals B with A

Extreme Correlations

The page highlights the most correlated and most anti-correlated pairs, which are useful for:

• Identifying hidden risk concentrations (highly correlated pairs you may not have expected)
• Finding natural hedges (anti-correlated pairs that could offset each other's risk)

Practical Application

If you see that AAPL and MSFT have a correlation of +0.85, it means that on days when AAPL goes up, MSFT tends to go up as well (and vice versa). Holding both provides less diversification benefit than holding AAPL and, say, a gold ETF with a correlation of -0.2.