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Correlation is the extent to which multiple risk profiles move in relation to each other.

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Correlated risk profiles move in concert when affected by the same set of stimuli. For example, there is substantial correlation between the Dow Jones Industrial Average (DJIA) and the Standard & Poor's (S&P) 500 Index because both are affected by the same factors. In contrast, uncorrelated risk profiles (e.g., a book of ocean marine business and a book of products liability coverage) react to entirely different stimuli. The combination of uncorrelated risk profiles results in lower combined volatility.



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Covariance is a measure of the volatility inherent in any risk-taking venture or activity.