It could be interesting to see how the correlation values change over the time. Click on The links below For comparision of the Correlation during past one Year and during past one week (updated on weekends).
Currencies are priced in pairs, no single pair trades completely independently of the others. This makes the understanding of correlation very important.
For example, currency pair "A" moves in the same direction as pair "B" and we have been following up pair A's move very closely. We expect it to go up and we buy. We have not been following up pair "B" so closely and suddenly we look into that and the fundamentals or technical analysis suggests us that this pair may go down. We short sell. What eventually would happen that we would end up having profit on one pair and loss on the other as they moved in same direction. Similar case would happen if we simultaneously go long or short on two pairs which move in opposite directions.
Once we know about these correlations and their changes with time, we can take advantage of them to control our portfolio's exposure.
The correlation coefficient ranges between -1 and +1.
A correlation of +1 implies that the two currency pairs will move in the same direction 100% of the time. A correlation of -1 implies the two currency pairs will move in the opposite direction 100% of the time. A correlation of zero implies that the relationship between the currency pairs is completely random.
Positive Correlation:
A positive figure but less than +1 means that the currency pairs generally move in same direction but not always. A value closer to +1 means that most of the time they move in the same direction
Negative Correlation:
A negative figure but more than -1 means that the currency pairs generally move in opposite direction but not always. A value closer to -1 means that most of the time they move in opposite directions.
