What Is Correlation

• Correlation measures direction and magnitude of price movement. Low correlation means that a price increase in stocks goes with price decrease in bonds (and vice versa) or that prices move in the same direction, but to different extents.
  
  

Interest Rate Effect

• Higher interest rates correspond to higher yield and lower bond price. Stocks don't respond to interest rate changes in same manner as bonds, so there's little correlation between stock and bond value with respect to interest rates.
  
  

Risk

• Bonds have lower risk than stocks. In addition, stocks have more volatility, meaning they go up and down more steeply. As a result, bonds often are seen as a safer investment.
  
  

Government Bonds

• Bonds can be issued by governments. This non-corporate infusion of government bonds affects overall bond behavior and contributes to low correlation between stocks and bonds.
  
  

Exceptions

• Past low correlations doesn't necessarily predict the future. For example, during the 2008-2009 recession, there was relatively high correlation between stocks and bonds.