Understanding correlations helps an investor build a portfolio to be diverse. You don’t want too much of your investment moving in unison, although nice when they all move up simultaneously not so good when they all drop together.
We again have the difference between being a trader and an investor. As an investor, when I see a stock in my portfolio on a down drift without apparent news, one thing I do is check if peers and adjacent markets move in same direction.
The conclusion I make regarding the $AVXL drop from just over $2 down to $1.2’ish is a correlation to the overall market and in particular to the biotech sector of about .5 where 1 means 100% correlated, 0 is not at all correlated and -1 is a 100% reverse correlation.
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