Currency correlation

In statistics, correlation is a relationship between two quantities measured at a time. Correlation is measured in the range of -1 (for perfect negative correlation) to +1 (for perfect positive correlation).
A positive correlation stated that both these quantities move in the same direction. The higher correlation means that the closer and more accurate motion similarity. Conversely, a negative correlation states where the movement opposing the negative (smaller) number means the stronger the correlation is the difference motion.
It is important to note that in forex trading, currency pairs we tradingkan is a single unit. The pair consists of two different currencies and the value is determined based on the value of one currency against the currency of his opponent. Technically when we trade on a currency pair, we do two trades at once. We buy a currency and simultaneously selling the currency partner. Example: if we buy the AUD / USD means that we buy at the same time we sell AUD USD at the same time. Unlike the stock in trade or other commodity, in the forex market would be more appropriate to look at the currency pairs we tradingkan as two different trades. This will help us to determine the relationship between the currency pairs we tradingkan and its correlation to help find opportunities (trading opportunity) to enter the market.
If we compare some of the major currency pairs in the forex market, we will see a similar shape in the pattern of price movements, such as the EUR / JPY and EUR / USD following:




Both of the above currency pairs move in a pattern that is similar to the strong correlation. If you want to prove can be specified on the movement of price fluctuations over time. Both the EUR / JPY and EUR / USD we will buy EUR and sell currency to another if we open a long position in the currency pair. Strong correlation can be seen as follows:

Another example is the USD / JPY and EUR / USD:



In the example above shows a strong negative correlation. Driving factor here is the change in price of one currency partner, in this case the USD. Since the USD is in a different position, in which one pair on the buy side being on the other pair on the sell side, so the relationship is negative. To explain this illustration, take the example of moving only the USD, while another currency, the EUR and the JPY is flat (not moving), then we will only compare the relationship between the movement of the price of the USD and the USD price movement in the opposite, which is obviously of no use .

Examples of positive correlations other currency pairs occurs partly on the EUR / USD and GBP / USD, and a negative correlation was also true for the USD / CHF and EUR / USD.

The correlation between the pair is very important to note especially for beginner traders, because if one understands the correlation in open trading positions will actually increase the risk. For example, open buy the EUR / USD and EUR / JPY will increase the risk except perhaps at certain moments. Similarly, open buy EUR / USD and open sell USD / JPY will also increase the risk.
If we examine and determine the correlation of two currency pairs in the forex market, then we can develop a unique trading strategy based on the pattern of price movements are correlated both spouses whether positive or negative, in addition to helping find the opportunity (trading opportunity) right to enter the market.