Correlation
How closely two assets move together, from +1 (in lockstep) to −1 (opposite) — the property that makes diversification work, when it is low.
Correlation measures the degree to which two assets move in the same direction. Near +1 they rise and fall together; near −1 they move oppositely; near 0 they move independently. It is the mathematics behind diversification.
Combining assets with low or negative correlation smooths a portfolio's ride, because their ups and downs partly offset. The catch: correlations are not fixed — in sharp sell-offs many assets fall together, exactly when diversification is needed most.