Understanding Correlation in Stock Returns

Investors often analyze the relationship between two assets to gauge the potential risks and returns associated with their portfolio. One of the statistical measures used for this purpose is correlation, which indicates the degree to which two variables move in relation to one another. Correlation values range from -1 to +1. A value of +1 implies perfect positive correlation, -1 implies perfect negative correlation, and 0 indicates no correlation.

Consider two stocks, Stock X and Stock Y. After calculating their returns over a certain period, you find that the correlation coefficient between their returns is +0.85. What does this value imply about the relationship between Stock X and Stock Y?