Correlation coefficient a measure of the relation between the returns on two securities Can be t or-or o Diversification is of greatest benefit in risk reduction when the correlation between the returns on the two securities is negativeCorrelation Coefficient ◼ A measure of the relation between the returns on two securities. ◼ Can be + or - or 0. ◼ Diversification is of greatest benefit in risk reduction when the correlation between the returns on the two securities is negative