Correlation of currency pairs on Forex

 When entering the Forex market, many beginners often do not understand the terms used by professionals. Some "new" words even frighten. One of these concepts is "correlation of currency pairs".

Let's figure out what this terrible name "currency correlation" is in Forex and why it is so important for a trader?

Currency pair correlation: what is it?

There are currency instruments that can move in the same direction. There are also currencies that move in the opposite direction.

So "correlation of currency pairs" is a very powerful tool that gives knowledge to those who trade with several currency pairs. Using correlation in practice, the trader is able to reduce the negative position (this is called hedging). The second option is to set more profitable positions using different tools. In this case, the correlation table of currency pairs acts as an indicator.

Currency correlation refers to the relationship between the direction of movement of several currency instruments, motivated by fundamental factors that affect a particular currency pair. Naturally, all pairs are in the quotation. Currency correlation can be positive (direct) and negative (reverse, mirror).

Positive correlation is understood as the movement of currency instruments in the opposite direction. Negative correlation refers to the movement of currency instruments in an inversely proportional trajectory relative to each other. The correlation table of currency pairs correlation is always displayed in both views.

Currency pair correlation table: interpretation

There are currency instruments that are highly correlated, and there are some that do not have any correlation at all. And as mentioned above, currency pairs can be both positively and negatively correlated. Currency instruments that have a strong positive correlation have not only a single direction, but also the most similar schedule. Currency instruments with a weak negative correlation always go with the price chart of the mirror image.

In order to understand and understand how strong or weak correlation currency instruments have, experts have developed a special table with correlation coefficients.

Let's look at one example of what such a table might look like:

currency pair correlation table onlinemarketshare.com scam

Looking at the currency correlation coefficient table, you can see that the coefficient ranges from -1 to +1.

Correlation with the value +1 means that currency instruments have almost perfect proportions 100% of the time.

A coefficient with a value of -1 indicates that currency instruments have an inversely proportional price chart 100% of the time.

A coefficient with a value of 0 tells us that the relationship between currency instruments does not have any correlation at all.

Currency pair correlation calculator

Now let's get to the main point: how do we calculate the correlation of currency instruments?

But for such actions, we need a correlation calculator for currency pairs. This is a very convenient mechanism, quite simple and easy to use. So even a novice in the Forex world can make calculations with it. You can find the calculator on any website dedicated to trading and the currency market.

Before we start calculating the correlation, we will need to determine the main currency pair from which we will start and perform the calculation.

Then we select the timeframe we are interested in. This is very important, because the correlation between different time periods can be completely different.

After selecting a timeframe, you need to set the number of selected time periods for calculation - from 10 to 300. The higher this number, the larger the timeframe will be analyzed.

After you have set all the parameters, you can start calculating the correlation.