Currency Correlation

Some currency pairs have very close correlation. Currency correlation is measured between -1 and 1. -1 is 100% negative correlation and 1 is 100% positive correlation and 0 means no correlation. Negative correlation is where one pairs moves up and the other pair moves down.

There are many Currency Correlation strategies that try to profit from these correlations.

Historically some of the mostly closely correlated forex are are:

USD/CHF EUR/USD - These forex pairs have a very close inverse correlation. Around -0.95 over the last few years.

GBP/USD EUR/USD - These pairs have had a very close correlation. Around +0.92 over the last few years.

Forex correlation is very important to understand when considering your risk management strategy. This is because if you are long on two pairs that have very close positive correlation, there will always be a good chance that trades will either win or lose, so it’s not necessarily spreading the risk appropriately.