What does negative correlation between two assets indicate?

A negative correlation between two assets indicates that when one asset's value increases, the other asset's value tends to decrease. This relationship suggests that the two assets move in opposite directions. For example, if you observe that when Asset A rises in value, Asset B consistently falls, this is a textbook case of negative correlation.

This dynamic is significant for portfolio management, as investors often seek to combine assets with negative correlations to hedge against risk. By including negatively correlated assets in a portfolio, an investor can potentially reduce volatility and better manage the risk of loss.

The other options share interpretations that do not align with the concept of negative correlation. While both assets increasing in value simultaneously pertains to positive correlation, volatility and safety do not inherently relate to correlation but rather describe risk characteristics and how asset prices may behave under market conditions. Understanding these distinctions is key in financial economics when assessing asset relationships.