Price or return correlation?

I am not sure. Michael Harris in his blog is in favor of return correlation. But price correlation looks more common sense.

In finance, we usually look at correlation of first differences.

 

Hope it helps. http://www.portfolioprobe.com/2011/01/12/the-number-1-novice-quant-mistake/

Quote from the author:
"Whether prices follow a random walk or not is not the issue — what matters is that there is dependence between prices at different times.

You need to ask yourself: Is the statistical technique I’m using assuming that the observations are independently distributed?

If the answer is “yes”, then you need to use returns and not prices. Techniques in this category include regression, standard error of the mean, …

If the answer is “no”, then you are free to use prices. Techniques in this category include some smoothers, seasonal decomposition, …"

 

Thanks. I suppose that first differences remove any dependence and trend.