A correlation of +1 means two assets move in lockstep; 0 means no relationship; -1 means they move opposite. Correlations rise sharply in crashes, when nearly everything falls together.
For a trader, five long positions in semiconductor stocks with 0.85 correlation are one large trade on the sector. portfolio-heat should be calculated with that in mind, and diversification only works across low-correlation assets.
Example: two stocks with a 0.9 correlation each risked at 1% create close to 2% of effective risk on a single idea, not two independent 1% bets.
Related: portfolio-heat, diversification, hedge, risk-management