When trading in forex, it becomes important to completely understand the portfolio’s sensitivity to market’s ups and downs. As we know that two currencies are usually priced in pairs, so knowing their correlations can help the investors to control their portfolio’s exposure. The forex trading brokers help the investors to invest by understanding the sensitivity of market volatility. This post aims to explain what correlation of currency pair is and how can we trade it?
The Forex Pairs Correlation indicates the relationship between the values of two forex pairs. It indicates a positive or negative relationship between the values of two forex pairs. When it shows a positive correlation, then it means that both the currency pairs move in the similar direction, but if it shows a negative relationship, it means that both the currency pairs move in opposite directions.
The forex pair correlation is crucial as it can provide investors with the opportunities to earn greater profits and hedge the exposure of risk. Correlation between two currency pairs ranges from 1 to -1; 1 represents a perfectly positive correlation between currency pairs and -1 represents a perfectly negative correlation. But, if the correlation comes out 0, it shows that the prices of two different currency pairs are not correlated.
To sum up, the correlation between the currency pair can be both positive and negative. The positively correlated currencies move in the same direction, whereas the negatively correlated currencies move in opposite directions. Both positive and negative correlation allows realizing greater profits and hedge risks. Traders can go for forex online trading in the above-said manner to earn profits or hedge exposures. But if you need an expert’s guidance, you can contact us via phone (+44 800 0418471) or email at [email protected]. We are available 24×7.