Correlation Analysis

Currency pairs and cross-asset relationship analysis

Currency & Asset Correlations

Correlation analysis measures how currency pairs and different asset classes move in relation to each other. Understanding these relationships helps hubs manage risk, identify opportunities, and avoid overexposure to similar market movements. Correlations range from -1 (perfect inverse) to +1 (perfect positive).

Currency Pair Correlations

DIRECT RELATIONSHIPS

How major currency pairs move relative to each other, identifying similar and opposite price movements.

EUR/USD vs GBP/USD:+0.85 (Strong positive)
USD/CHF vs EUR/USD:-0.92 (Strong negative)
Update Frequency:Real-time

Commodity Currencies

RESOURCE-LINKED

AUD, CAD, NZD correlations with commodities like gold, oil, and agricultural products.

AUD/USD vs Gold:+0.70 (Positive)
CAD/USD vs Oil:+0.65 (Positive)
Usage:Hedge commodity exposure

Risk-On/Risk-Off

RISK SENTIMENT

How currencies respond to global risk appetite changes and flight-to-safety movements.

Risk-On Currencies:AUD, NZD, EUR
Safe Havens:USD, CHF, JPY
Correlation Shift:Crisis periods

Stock Market Correlation

EQUITY RELATIONSHIPS

Currency movements versus major stock indices like S&P 500, FTSE, Nikkei, and DAX.

USD vs S&P 500:Variable (-0.3 to +0.4)
JPY vs Nikkei:-0.60 (Inverse)
Application:Cross-asset strategy

Interest Rate Correlations

YIELD RELATIONSHIPS

How currency movements correlate with government bond yields and interest rate differentials.

USD vs 10Y Treasury:+0.75 (Strong positive)
EUR vs Bund Yield:+0.55 (Moderate positive)
Strategy:Carry trade analysis

Dynamic Correlations

CHANGING RELATIONSHIPS

How correlations change over different time periods and market conditions, requiring dynamic analysis.

Normal Markets:Stable correlations
Crisis Periods:Correlation breakdown
Recalculation:Daily/Weekly basis

Using Correlation Analysis

Portfolio Diversification

  • ✓
    Avoid trading highly correlated pairs simultaneously (EUR/USD + GBP/USD)
  • ✓
    Use negative correlations for hedging (EUR/USD long + USD/CHF long)
  • ✓
    Monitor correlation changes during major market events

Trading Applications

  • $
    Pair trading: Long strong currency, short weak but correlated currency
  • $
    Cross-asset confirmation: Use stock/bond correlations to confirm FX moves
  • $
    Risk management: Calculate portfolio correlation and adjust position sizes

Major Currency Correlation Matrix

PairEUR/USDGBP/USDUSD/CHFUSD/JPYAUD/USD
EUR/USD1.00+0.85-0.92+0.15+0.78
GBP/USD+0.851.00-0.88+0.22+0.72
USD/CHF-0.92-0.881.00-0.18-0.75

*Correlations based on 30-day rolling window. Updated daily.

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