Investigate Pearson correlation values for stock returns: high, medium, low.

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😎 Investigate about the Pearson correlation in stocks and try to come up with orientative values of what is “high correlation”, “medium correlation” and “low correlation” in terms of Pearson correlation of daily stock returns
🤖 To investigate the Pearson correlation in stocks and define “high,” “medium,” and “low” correlation values for daily stock returns, I will search for the most relevant information available and interpret the results.

### Search and Interpretation

1. **Pearson Correlation Coefficient**: This measures the linear correlation between two variables, expressed between -1 and 1. A coefficient of 1 implies a perfect positive linear relationship, -1 a perfect negative linear relationship, and 0 indicates no linear correlation.

2. **Application in Stock Returns**: Investors use the Pearson correlation coefficient to gauge the strength of the relationship between the returns of two stocks. This helps in diversifying portfolios and managing risk.

3. **Interpretive Ranges for Stock Returns**:
– **High Correlation**: Generally, correlations above 0.5 to 0.7 are considered high. This suggests that the stocks move in the same direction consistently.
– **Medium Correlation**: Correlations between 0.3 and 0.5 are typically viewed as moderate. These stocks share some degree of linear relationship but not strongly.
– **Low Correlation**: Correlations below 0.3 are considered low, indicating a weak linear relationship between the returns of the stocks.

These thresholds are not fixed and can vary based on market conditions and the specific stocks being analyzed. Investors might adjust these thresholds based on broader market correlations and individual investment strategies.

### Example Sources

– [Investopedia: Understanding the Pearson Correlation Coefficient](https://www.investopedia.com/terms/p/pearsoncoefficient.asp)
– [CFA Institute: Correlation and Diversification in Finance](https://www.cfainstitute.org/en/research/foundation/2019/correlation-and-diversification)

By examining these resources, investors and analysts can better understand and utilize Pearson correlation coefficients to assess and manage the relationships between different stock returns effectively.

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