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The correlation number gives us an
estimate of how closely currency pairs move together
or opposite each other, and how strong or weak over
a specified period of time.
The correlation number gives us an estimate of how
closely currency pairs move together or opposite each
other, and how strong or weak over a specified period
of time.
A positive number closer to 1 would indicate a strong
correlation, while a negative number closer to -1
would indicate a weak correlation.
Knowing how closely correlated currency pairs are
can be a very powerful tool when trading currencies.
The information these numbers give allow investors
to to diversify their portfolio whilst minimising
risk.
For example, an investor who wanted to double his
investment without doubling up on one currency pair,
might instead open a position on another currency
pair which a strong correlation.
Likewise,, it might not be a good idea to go long
on one currency and short on another pair that have
a strong positive correlation.
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