Currency Correlation

What is Currency Correlation in CFDs Trading?

Currency correlation (also called forex correlation, forex pairs correlation, or currency pair correlation) explains how different currency pairs move in relation to each other.

• If two pairs usually move in the same direction, they have a positive correlation.
• If they move in opposite directions, that’s a negative correlation.
• If their movements don’t affect each other, they have little or no correlation.

In CFDs, correlations are often measured on a scale from –1 to +1:

• +1 means they move together almost perfectly.
• –1 means they move in exact opposite directions.
• 0 means no clear relationship.

How Currency Correlation Affects Your Trading

Avoiding doubled risk: 

If you trade two pairs that are highly correlated (like EURUSD and GBPUSD), it’s almost like making the same trade twice. A single market move could impact both positions at once.

Balancing with opposite pairs: 

Negatively correlated pairs (like EURUSD and USDCHF) often move in opposite directions. Some traders use this as a hedge, holding positions in both to reduce potential losses.

Spotting opportunities: 

If one correlated pair starts to move strongly, the other may follow. Watching forex currency correlation can give you an early hint of market movement.

Example of Currency Correlation

• Positive correlation: EURUSD and GBPUSD often rise or fall together, since both depend heavily on the U.S. Dollar.
• Negative correlation: EURUSD and USDCHF usually move opposite each other. If EURUSD goes up, USDCHF often goes down.