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Correlated forex pairs,live forex chart streaming,gold metatrader 5 - PDF Review>

Correlation, in the financial world, is the statistical measure of the relationship between two securities.
Correlations Do ChangeIt is clear then that correlations do change, which makes following the shift in correlations even more important. Calculating Correlations Yourself The best way to keep current on the direction and strength of your correlation pairings is to calculate them yourself. Even though correlations change, it is not necessary to update your numbers every day, updating once every few weeks or at the very least once a month is generally a good idea.
How To Use It To Manage Exposure Now that you know how to calculate correlations, it is time to go over how to use them to your advantage.
The Bottom Line To be an effective trader, it is important to understand how different currency pairs move in relation to each other so traders can better understand their exposure. However, the interdependence among currencies stems from more than the simple fact that they are in pairs. While some currency pairs will move in tandem, other currency pairs may move in opposite directions, which is in essence the result of more complex forces. A correlation of +1 implies that the two currency pairs will move in the same direction 100% of the time. Over the past 6 months though, the correlation was weaker (0.66) but in the long run (1 year) the two currency pairs still have a strong correlation.

This relationship even holds true over longer periods as the correlation figures remain relatively stable.
With a coefficient of 0.95, they had a strong positive correlation over the past year, but the relationship deteriorated significantly in February 2010 for a number of reasons, including the rally in oil prices and the hawkishness of the Bank of Canada.
Strong correlations today might not be in line with the longer-term correlation between two currency pairs. Learning about currency correlation helps traders manage their portfolios more appropriately.
A correlation of -1 implies the two currency pairs will move in the opposite direction 100% of the time. The one-year, six-, three- and one-month trailing readings give the most comprehensive view of the similarities and differences in correlation over time; however, you can decide for yourself which or how many of these readings you want to analyze. Then fill in the columns with the past daily prices that occurred for each pair over the time period you are analyzing 3. Regardless of your trading strategy and whether you are looking to diversify your positions or find alternate pairs to leverage your view, it is very important to keep in mind the correlation between various currency pairs and their shifting trends. A correlation of zero implies that the relationship between the currency pairs is completely random. This provides a clearer perspective on the average six-month relationship between the two currency pairs, which tends to be more accurate.

Reading The Correlation Table With this knowledge of correlations in mind, let's look at the following tables, each showing correlations between the major currency pairs during the month of February 2010. Correlations change for a variety of reasons, the most common of which include diverging monetary policies, a certain currency pair's sensitivity to commodity prices, as well as unique economic and political factors. Highlight all of the data in one of the pricing columns; you should get a range of cells in the formula box. The imperfect correlation between the two different currency pairs allows for more diversification and marginally lower risk.
Regardless of whether you are looking to diversify your positions or find alternate pairs to leverage your view, it is very important to be aware of the correlation between various currency pairs and their shifting trends. This is powerful knowledge for all professional traders holding more than one currency pair in their trading accounts.

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01.05.2015 | Author: admin

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