You have a stock portfolio to provide a balanced and risk-adjusted exposure to the stock market. But for this to be meaningful, the stocks in a portfolio should not be correlated. https://www.i4value.asia/2022/01/how-to-construct-winning-stock.html#more

This then begs the question. Should the correlation be based on price or some business fundamentals?

The ideal case is to have uncorrelated stocks based on both market price and business performance correlation. This will achieve diversification that addresses short-term volatility and aligns with long-term investment objectives.

In practice I seldom look at price correlation in my stock portfolio as I am a long-term investor. I look at correlation from a business perspective.

Take the example of Eksons and Annum. The former was in the plywood and is now attempting to be a bigger property developer. Annum is still in the plywood business although it has ventured into construction and property development. The top chart shows the ROE trends of the 2 companies while the bottom chart shows the share price trend.
https://i.postimg.cc/xCngD2cF/Eksons-vs-Annum.png

Should they be in the same portfolio?