Correlation

A measure of how two series move together, running from minus one to plus one.

Its role in portfolio construction is that combining assets with correlations below one produces a portfolio less volatile than the weighted average of its parts, which is the only free lunch in finance.

Unfortunately for anyone relying on them, correlations aren't stable, and they rise in the very conditions where diversification is needed. Assets that behaved independently for a decade move together in a crisis, because the marginal seller is selling everything.

Stress-period correlation is the number that matters. Average correlation is the number that gets quoted.