What is the "correlation" between pairs?
When investing in currency pairs in the Forex market seems to be no end to the external forces that govern the movement of prices. News, politics, interest rates, market direction, and economic conditions are the external factors that must be taken into account.
However, there is always the internal force that affects some currency pairs.
Correlation is the tendency of some currency pairs move in tandem with others. The positive correlation means that couples are moving in the same direction, negative correlation means that they move in opposite directions.
The correlation exists for various complex reasons and because some currency pairs contain the same currency as your base currency or contramoneda, for example, the EUR / USD and USD / CHF. Because the Swiss economy Tends to be reflected in Europe in general and Because the USD is on the opposite side of each of these pairs, one currency movements - to some extent - will reflect the other.
Correlation is actually the statistical term for measuring traffic between 2 tandem pairs of currencies. A correlation coefficient of 1.0 means that the pair moves exactly parallel to each other, a correlation of -1.0 means that the couple moves exactly in the opposite direction.
The numbers between these two extremes, showing the relative amount of correlation between a set of pairs. A ratio of 26 means that couples have a slight positive correlation coefficient of 0 means that the pairs are perfectly independent.
How Correlation can be used in my investment?
Now we know we can expect certain levels of traffic in parallel between certain pairs, and we can make better investing decisions given the information. Now we know we can expect Certain levels of traffic in parallel between Certain pairs, and we can make better investing decisions given the information. By creating hedges, diversification of risks in profitable positions, and avoiding even positions which are positive correlation to cause, naturally, to "cancel" each other. By creating hedges, diversification of risks in profitable positions, even positions and avoiding Which are positive correlation to cause, naturally, to "cancel" each other.
Here is an example where the risk is diversified using a correlation in a currency pair. Here is an example where the risk is diversified using a correlation in a currency pair.
Scenario 1
Say you believe that the dollar rally is set. The obvious thing would be to go short in the EUR / USD, but that puts her squarely result in the movement of a pair. If you would like to Diversify their risk, you can find a partner that has a positive correlation with the EUR / USD and split the operation into two pairs. The AUD / USD has a very high - but not perfect - correlation with the EUR / USD. You might want to break its position between the EUR / USD and AUD / USD (which has a positive correlation of about .71 (at the time of this writing)).
The positive correlation between pairs allows you to benefit from movement of the dollar, while the lack of perfect correlation reduces your risk of volume in any of the 2 pairs.
Scenario 2
Understanding the correlation allows you to avoid taking positions (due to the high negative correlation) will tend to cancel each other. This will help you when developing profitable trading strategies or profitable trading systems. Understanding the correlation Trial Write to avoid taking positions (due to the high negative correlation) will Tend to cancel each other. The couples have a historical correlation coefficient of about -. 90. This means that almost always move in opposite directions. Knowing this, an investor will not go long in the two pairs at the same time because the movement of a pair will cancel the movement of the other.
