# Negative Correlation

### Written byTrue Tamplin, BSc, CEPF® | Reviewed by Editorial Team

Updated on December 14, 2022

## Negative Correlation Definition

A negative correlation is a relationship between any two variables in which one increases while another decreases.

For example, albeit a very simplified one, a negative correlation exists between hot coffee and warmer weather.<h2>Negative Correlation Explained</h2> The degree to which two variables are negatively correlated with one another is called a correlation coefficient (denoted by r), and its measurement ranges from -0.1 and -1.

If a relationship were to have a correlation coefficient score of -1, then the two variables would have a perfect negative relationship.

While a score -0.1 would indicate a weak negative relationship between variables.

By squaring a relationship’s R-value, referred to as R-squared, an analyst can then determine the degree to which the variance of the two variables is related to one another.

Expressed in percent, if a R-value was equal to -.6, then the value’s R-squared would equal 36%.

Meaning that the variance in one variable could be explained by the second variable 36% of the time.

## Profiting From Negative Correlations

In finance, negative correlations come in handy when attempting to diversify a portfolio.

By putting money into investments that tend to perform oppositely under the same economic conditions, stocks and bonds for example, an investor can remain profitable under a variety of conditions.

## What Is a Negative Correlation FAQs

### What is a Negative Correlation?

A negative correlation is a relationship between any two variables in which one increases while another decreases.

### How are Negative Correlations used in finance?

In finance, negative correlations come in handy when attempting to diversify a portfolio.

### How do investors profit from Negative Correlations?

By putting money into investments that tend to perform oppositely under the same economic conditions, stocks and bonds for example, an investor can remain profitable under a variety of conditions.

### What is an example of a Negative Correlation?

A negative correlation exists between hot coffee and warmer weather.

### What would be the score for a perfect negative relationship?

A score of -.1 would be a perfect negative relationship.