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The Admirals Forex correlation matrix above shows the correlations between the following currency pairs:
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Assets with high correlation move in the same direction. For this reason, opening multiple positions with pairs that are highly correlated is not advisable, as you are essentially making the same trade more than once. This puts you in a very vulnerable position if the market turns against you. In Forex, if a trader goes long on the AUDCHF, AUDJPY, and EURJPY, a trader risks double exposure if they are highly correlated.
You can quickly and easily measure the strength of major currencies in relation to other currencies in real-time.
Digging deeper, the aforementioned positions bring double exposure to AUD and JPY, which can be harmful for trade should the movement go in the opposite direction from the trader's expectations.
Switch Markets offers many benefits, including financial calculators that are free.
The Admirals Forex correlation matrix above shows the correlations between the following currency pairs:
The Live Currency Strength Meter visual guide shows which currencies are performing well and those that are struggling. Switch Markets' Live Currency Strength Meter uses only the exchange rates for different currency pairs to show a visual representation on the currency's performance.
With a Forex correlation matrix, you can see at a glance which currencies are correlated, which means you can avoid making these trades in the first place, and can consequently avoid double exposure to a weak currency.
You can instantly see the strengths and weaknesses of different currencies in real-time in your trading platform. USD, EUR and GPB. You can also compare JPY, CAD, GPB, CHF, GPB, GPB, CAD, and many other currencies!
Correlation between different currency pairs can also signal the level of trade strategy risk. For example, if we are going long on EUR/USD and GBPUSD, and both are positively correlated pairs, it signals a possible double risk from the same position if one of the currencies is strong.
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If the correlation strength between different pairs is known in advance, a trader can avoid unnecessary hedging. For example, if there is a negative correlation between EUR/USD and USD/CHF, you know that these pairs are moving in different directions. Therefore, if you opened long trades on both, you would likely win on one trade and lose on the other.
Use our Forex Swap Rate Calculator to calculate the swap rate for Forex positions held overnight before you trade.
What might also happen is that one of the pairs indicates a strong movement, while the other is just ranging, which signals traders to avoid entering trades with correlated pairs in the opposite direction. For example, if the EUR/USD is witnessing a downtrend, and the GBP/USD is ranging, a trader should avoid going long on GBP/USD, which carries a higher downside risk due to possible USD strength.