View Full Version : Correlation of Pairs
I tried a search but must not be asking the questions.
Some pairs operate roughly reverse : Eur/Usd vs Usd/Chf
Others operate roughly similar . What is the connection between Eur/Usd and Usd/Jpy
Thanks.
Lou,
check out this site: http://www.dailyfx.com/
They have fx correlations available and are updated yearly.
I tried a search but shouldn't be asking the right questions.
Some pairs operate roughly opposite : Eur/Usd vs Usd/Chf
Others operate roughly equivalent . What is the relationship between Eur/Usd and Usd/Jpy
Thanks.
Lou lou, I think you are referring to which side of the / USD is on. So pairs together with USD on the left side (such as USDJPY, USDCHF) will operate roughly similar as the USD is on the same side.
So that the relationship between EURUSD and USDJPY is roughly opposite. If EURUSD is going up, this means that the dollar is weakening, whereas when the USDJPY is it up means the dollar is strengthening. Is that what you're asking? Or are you inquiring about the relationship between markets?
I believe Lou is inquiring about the strength of correlation between the monies. Or to put it differently, if the EUR/USD is shing upward, what's the probability or how likely the USD/CHF will move down following it?? And how likely will the USD/JPY will move up in such a case?? So on...
From my poor observations, both EUR/USD and USD/CHF are moving in opposite directions 80-85% of their time. .
GBP/USD and EUR/USD are moving the same way 60-65% of their time. .
EUR/USD and USD/JPY are moving in opposite directions 40-50% of their time. .
EUR/USD and USD/CAD are moving in opposite directions 20-25% of their time. .
EUR/USD and AUD/USD are moving the same direction 30-35% of their time. .
Of course, all were related to the EUR/USD motion, you could base your observations on another pair, for example, see how the EUR/USD follow the GBP/USD or view how the GBP/USD follow the USD/JPY and so forth...
Thanks,
Nader
Thank you, everybody. Just what I was looking for.
I particularly liked the %
I exchange Cable.
On a single screen I have a 5 minute Cable graph on the right side. The 50 percent that were abandoned is split with verticals of CHF, Yen and Euro.
I watch the other 3 carefully and use as a leading indior / filter, ideal B4 I am about to enter or exit a trade.
Yesterday morning was a great example. There was a great short on Cable @ 1.7360 place, although the other 3 all broke support or resistance, with throw candles, against my commerce. Cable followed. I ended up carrying the break out (the other direction) to get a large score.
When I am about to enter a Cable commerce and possibly Yen or CHF moves more than 5/6 pips againt my trade, at the exact momment, I'll hold off for a couple minutes, delaying the entry decision.
Check out the attached article, which I presume is among the most important I have read this year. Tried to find a thread going on it B4 without response.
https://forexintuitive.com/attachments/1518079785.pdf
I tried a search but shouldn't be asking the proper questions.
Some pairs operate roughly opposite : Eur/Usd vs Usd/Chf
Others operate roughly similar . What is the relationship between Eur/Usd and Usd/Jpy
Thanks.
Lou Hi Lou,
This site has a graph that updates daily and even hourly at 5, 20 and 100 intervals.
http://www.mataf.net/en/analysis-correlation.htm
HTH
Hi, I believe mataf and dailyfx are fine to get a fast overview of correlations although I would advise doing the following if you are really considering the co-behaviour of e.rates:
* Get end of day prices going back a few years (you can acquire free data from many web-sites).
* Calculate the correlations for the applicable periods, possibly 30 day, 90 day, and 1 year.
* This brings one to the exact same stage as dailyfx and mataf tables.
* Now drag the significance formula down to figure out the rolling correlation (ie see how the 30 day correlation, for instance, has shifted over time). This is important because currency correlations can be unstable for many prices. You can chart the correlations over time to determine precisely reliable or how volatile those correlations are. I am surprised mataf and dailyfx do not provide those graphs.
* The last thing I'd look at doing is to look at correlations of returns (% change( or log yields) versus just looking at the absolute levels (again, that is exactly what mataf and dailyfx perform). This could be significant because currencies trend collectively (eg cable and EUR/USD) however if you are a short-term trader you may be more interested in inquiring especially 'if EUR/USD yields 1% now, what will wire return?'
(if you're interested I wrote a piece on the correlation between http://.blogspot.com/2005/12/interesting-correlations-cable-eurusd.html within my blog, but its slightly outdated now, and behaviours may have shifted.)
: )
Continue reading this http://www.investopedia.com/articles/forex/05/051905.asp by Kathy Lien on the way best to do this using a spreadsheet. Should you use MT4 then change the view to save the chart for a text file and then import into a ss.
In my bad observations, EUR/USD and USD/CHF are moving in opposite directions 80-85% of their time. . Err....why waste your time together with observations when you can merely look at the EURCHF chart. That will tell you exactly what the correlation is. Same with currency pairs. . .if you want to know the significance with all the EURUSD and USDJPY, simply look at the EURJPY etc. .
I beleive this can be known as triangular arbitrage, or something comparable, if I remember from my time spent researching global finance (while I was awake during lectures, that is...!)
I beleive this is known as triangular arbitrage, or something comparable, if I remember from my time spent studying global finance (while I had been awake during lectures, that is...!) Thats exactly what it is.
You should tell the guys in the https://forexintuitive.com/forex-trading-cfds/97817-.html ribbon that school CAN help you in gambling!
err....why waste your time with observations as soon as you can merely look at the EURCHF chart. That will tell you precisely what the correlation is. Same with currency pairs. . .if you want to know the significance with all the EURUSD and USDJPY, simply look at the EURJPY etc. . I don't believe this will bring the correlation between the 2 pairs the exact same way you look at the other two pairs...
whenever you're looking at the EUR/CHF, you're see the grand total of this motion of the other two pairs, the EUR/USD along with the USD/CHF, but you do not really know what occurred there for everyone. . .Someone might have moved up modestly with the other stable, so the EUR/CHF went up, somebody might have moved up sharply along with the other down slightly, so the outcome is going to be the exact same on the EUR/CHF graph as the first instance...
What I am trying to state is that when you look at the EUR/CHF, you're viewing the product of the movements of the other two pairs, which means you truly do not work out the complete connection between the 2 pairs. .
For instance:
The EUR/CHF is trading at 1.5500, the EUR/USD is trading at 1.2000, and therefore the USD/CHF is trading at 1.2916
The EUR/CHF moves upward to 1.5600, the results here are so much:
1- Can the EUR/USD maintained trading at 1.2000 and the USD/CHF went upward to 1.3000?
Two- Did the USD/CHF maintained trading at 1.2916 along with the EUR/USD went to 1.2078?
3- Can the USD/CHF went to 1.2950 along with the EUR/USD went to 1.2046?
The above 3 cases do not apply for the reverse correlation.
4- Can the USD/CHF went to 1.2850 along with the EUR/USD went to 1.2140?
5- Did the USD/CHF went to 1.3050 along with the EUR/USd went to 1.1954?
The above 2 instances employ for the reverse correlation.
So what really happened? You can't really know just by viewing the graph of this EUR/CHF guy...
Thanks,
Nader
Iso,
I have just read the link to the item by Kathy Lien. A fantastic overview.
She does mention using a trailing correlation (which I earlier called a rolling correlation). This is so much better than just looking at tables. However, she doesn't speak about utilizing returns to compute the correlations, which is important. I look at graphs initally, but the issue is that two currencies might be dring or trending together over the long-term, but aren't correlated on a day to basis. This does and can happen.
Also, she talks about hedging a EUR/USD exposure with USD/CHF, something I truly disagree with. Why not reduce your exposure? By hedging like this, you're paying out more spread, and depart yourself vulnerable to a shift from the correlation that risks creating your Dollar less powerful. Not good.
: )
Reply abob - the basics is, up to correlations proceed! :
I am not a fantastic lover of hedging either for reasons you have stated but again I am not a specialist there. (Looks like I've got some studying to do!)
For the Investopedia post why don't you reply with your queries to her? You obviously know your stuff so I think she would be interested in your comments also.
iso,
I have only read the link to the item by Kathy Lien. A good overview.
She does mention using a trailing correlation (which I earlier known as a rolling correlation). This is indeed much better than just looking at tables. But she doesn't talk about using returns to compute the correlations, which can be important. I look at charts initally, but the issue is that two monies might be trending or dring together over the long term, but are not correlated on a day to basis. This can and does occur.
Additionally, she talks about hedging a EUR/USD exposure with USD/CHF, something I really disagree with. Why don't you lower your exposure that is EUR/USD? By hedging like this, you are paying out more spread, and end up susceptible to a change in the significance that risks making your Dollar less powerful. Not good.
: )
Hello iso dude, I did indeed em her a few weeks ago with suggestions for the dailyfx.com correlation evaluation. She liked the thoughts, but had been swamped with anything else. . .life Continues
Lou,
check out this website: http://www.dailyfx.com/
They've fx correlations available and are updated yearly. friggin' amazing! Thanks for this link!
I've noticed this correlation in 4 hour graphs and see that when you overlay the graphs, the correlation itself signals going long one pair and brief the other, but like any other system, there are a lot of false signals, as if both are headed together, but suddenly reverse in reverse directions, each the strong corrolation characteristic.
A midpoint line introduces itself, where the upper pair and reduced pair may or may not meet. It would be improbable the values of these pairs, relative to their appreciation/depreciation, when they did meet would stay at this point for extended time (because of the high likelihood of adverse corrolation). The likelihood being greater that they would move apart and staying apart before moving back again presents itself.
Sell from the money options on the upper pair, and buy from the money options on the lower pair. Build more on the premium compared to purchasing the lower. Inevitably the pairs will shift inward, and you earn money on the upper, or the reduced goes up farther than the upper goes down. Plus they do not necesary need to to intersect, its just playing with this .90 - corro play around the midpoint that the 2 pairs are being pushed and pulled off from.
The trade could discount if the difference persisted againt the play to the midpoint, so you would need to sell up notch and forget purchasing the decreased calls.
Another play is to brief the upper in FX and purchase the reduced in FX,, and buy from the money options on the upper FX and sell from the money under the decrease FX. The drawdown will be Flat Corro Upper Calls and Put. You have to be a estimate to how much the negative corro inwards would gain, then purchase and sell around it. In case the gain is healthy, they guess you could do it, even after factoring the costs for the options from the play.
What a notion you gotten me warmed on. I can not get this!
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