A market correction is a rapid change in the nominal price of a commodity, after a barrier to free trade has been removed and the free market establishes a new equilibrium price. It may also refer to several such single-commodity corrections en masse, as a collective effect over several markets concurrently.[1] [2] [3]
Stock market correlation refers to the statistical relationship or connection between the price movements of different stocks or financial instruments.[4]
A stock market correction refers to a 10% pullback in the value of a stock index.[5] [6] Corrections end once stocks attain new highs.[7] Stock market corrections are typically measured retrospectively from recent highs to their lowest closing price. The recovery period can be measured from the lowest closing price to new highs, to recovery.[8] Gains of 10% from the low is an alternative definition of the exit of a correction.
Understanding stock market correlation is vital for investors and traders as it can provide insights into portfolio diversification, risk management, and asset allocation. By analyzing correlations, investors can assess the potential impact of market movements on their overall portfolio, identify opportunities for hedging or reducing risk, and make informed decisions based on the interplay between different stocks or sectors.