Performance of diversity systems is often evaluated under the assumption of perfect interleaving and characterised in terms of long-term parameters such as the average bit-error rate, which does not capture the dynamics of fading channels. Statistical characteristics (static and dynamic) of the envelope of two correlated Rayleigh fading channels are explored using a physical model. For two popular diversity-combining schemes, maximal ratio combining and selection combining, both static and dynamic (level-crossing rate) properties of correlated fading channels are derived. These results are very useful for performance evaluation of diversity systems without bit-level simulations. The results can also provide very useful characteristics such as average duration of fades, fading rate and outage probability for two-channel diversity systems and can be extended to multiple fading channels.