What are negatively correlated assets?

Negatively correlated assets are investments that tend to move in opposite directions relative to each other. When one asset increases in value, the other tends to decrease and vice versa. This concept plays a crucial role in diversifying a portfolio by reducing risk and volatility [1].

For instance, bonds and stocks often show negative correlation. During economic downturns, stocks may lose value, but bonds often gain or maintain their value because they are considered safer investments. Using negatively correlated assets can protect against significant losses in a portfolio during market downturns [2].