Currency Correlations — is one of the important concepts of Forex trading that should be in the arsenal of every trader, which is trading on currency and other financial market. What is currency and other financial instruments correlation?
Minus one index is opposite, mirror movement of the two assets, plus one factor involves table movement of assets in the same direction at the same time. The coefficient 0 is the lack of any correlation, and therefore there is no correlation between assets.
There is a specific formula for correlation between financial and monetary instruments calculation. The formula is relatively complicated and the correlation calculation between two instruments may be difficult, though often for these functions the features of Excel software is used.
But to use special calculators is still easier. The latter option is more convenient and it is implemented in certain financial projects, one of which is the site of Oanda U. The forex below contains a correlation with the calculated correlation coefficients for main currency pair from correlation hour to 1 year. Certainly, you do not just notice that the graphs of some currency pairs move virtually identical or graphics are drawn in mirror.
For example, EURUSD and GBPUSD have a correlation coefficient approximate to 1, which means that often they move in the same direction. What is the reason? The reason is that the correlation coefficient is correlation a statistical indicator, it changes depending on various conditions.
And if this week two instruments were going practically in the same direction, next week they can go in different directions, drawing mirrored charts. There are market and non-market factors that affect any particular currency. As EURUSD is leading currency pair and the change in the price of all table will depend on the policy of the Eurozone.
As GBP, its movement primarily depends on interest forex size in the UK. As they are higher, so the price of the instrument is higher too.
Logic of related financial instrument movement can be used in commercial processes used and in certain strategies. For example, if several pairs with positive correlation to each other are increasing at the same time EURUSD is increasing, so EURJPY and EURGBP currency pairs with a positive correlation are also increasingso it amplifies purchase signal for any of considered tools.
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