CURRENCY CORRELATION AND FOREX TRADING

According to the whatis.techtarget.com "Correlation is a statistical measure that indicates the extent to which two or more variables fluctuate together. A positive correlation indicates the extent to which those variables increase or decrease in parallel; a negative correlation indicates the extent to which one variable increases as the other decreases." Okay, we do not need be a graduate of statistics to understand the currency correlation, which is essential in forex trading.

 

Source:education-portal.com

In the above figures we can see positive correlation, zero correlation and negative correlation. So, two currency pairs are positively correlated when their movements are to a similar direction.It means when one currency pair moves upward, another one also moves upward. It is also true in case of downward movements. Two currency pairs are negatively correlated, if the two moves towards opposite directions. It means when one goes up, another one goes down. 

In the above image we can see some of currency pairs with positive correlation and negative correlation. Forget about the currency pairs that have zero or no correlation. The above image is not the complete list of  correlated currency pairs, and it is not possible to present the all correlated currency pairs in this short post. 

 

You can find the correlated currency pairs here with the correlation calculator. If two currency pairs have +1 correlation, that means the pairs are 100% positively correlated with each other, and If two currency pairs have -1 correlation, that means the pairs are 100% negatively correlated with each other.Visit the correlation calculator linked above and find the correlation between your desired currency pairs.

 

These are the core issues about currency correlation, and now the question is that "How currency correlation is applied in forex trading". The answer is not that simple, that is why I decided to write another couple of posts on application of currency correlation in forex trading. If you have any question about currency correlation ask me, dropping a comment below.