Using Currency Correlation to Your Advantage

Correlation, in the financial world, is the statistical measure of the relationship between two securities. The correlation coefficient ranges between -1 and +1. A correlation of +1 implies that the two currency pairs will move in the same direction 100% of the time. A correlation of -1 implies the two currency pairs will move in the opposite direction 100% of the time. A correlation of zero implies that the relationship between the currency pairs is completely random.

The reason for the interdependence of currency pairs is easy to see: if you were trading the British pound against the Japanese yen (GBP/JPY pair), for example, you are actually trading a kind of derivative of the GBP/USD and USD/JPY pairs; therefore, GBP/JPY must be somewhat correlated to one if not both of these other currency pairs. However, the interdependence among currencies stems from more than the simple fact that they are in pairs. While some currency pairs will move in tandem, other currency pairs may move in opposite directions, which is in essence the result of more complex forces.

I found a site wherein there is a daily update of the currencies correlation. It might be useful for those who are into traditional forex trading.

The link is http://www.mataf.net/en/analysis-correlation.htm, I have added this in the list of Forex Related Links.

As for me, since I am using FreedomRocks Software, this will also be a good guide maybe, to signal if I am willing to risk if I see the current correlation a little off the usual.


Learn More, Watch Video - Get 15-day Free Trial
Join FreedomRocks - Earn More, be a Representative

.