{"id":11702,"date":"2022-03-17T17:47:56","date_gmt":"2022-03-17T14:47:56","guid":{"rendered":"https:\/\/roboforex.com/blog\/?p=11702"},"modified":"2023-10-17T15:03:04","modified_gmt":"2023-10-17T12:03:04","slug":"how-to-use-correlation-calculator-for-currency-pairs","status":"publish","type":"post","link":"https:\/\/roboforex.com/blog\/blog\/2022\/03\/17\/how-to-use-correlation-calculator-for-currency-pairs\/","title":{"rendered":"How to Use Correlation Calculator for Currency Pairs"},"content":{"rendered":"\n

This overview is devoted to the issue of correlation of currency pairs<\/a>, counting it with a special calculator, and using it in trading.<\/p>\n\n\n\n

<\/span><\/a>What is currency pair correlation<\/span><\/h2>\n\n\n\n

In finance, correlation is a statistical measurement of how two assets move one against another. In other words, this is the capability of one financial instrument follow another one. For example, gold<\/a> and silver<\/a> have high correlation.<\/p>\n\n\n\n

The idea of currency correlation represents the connections between currency pairs in Forex<\/a>, the dependence of their movements one from another. Correlation demonstrates whether two pairs fluctuate similarly: the higher the correlation, the more in run are the two pairs. Currency pairs with strong correlation move somewhat in unison.<\/p>\n\n\n\n

<\/span><\/a>Positive correlation<\/span><\/h2>\n\n\n\n

Positive (or direct) correlation means that quotes go in the same direction – up or down.<\/p>\n\n\n\n

For example, strong positive correlation is demonstrated by EUR\/USD<\/a> and EUR<\/a>\/CAD<\/a>. In the picture below it is obvious that the quotes of these pairs often go in one direction, and their charts look quite similar.<\/p>\n\n\n\n

\"Direct<\/a>
Direct correlation of EUR\/USD and EUR\/CAD<\/em><\/figcaption><\/figure>\n\n\n\n
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<\/span>Negative correlation<\/span><\/h2>\n\n\n\n

Negative (inverse) correlation means that two financial instruments change similarly but in the opposite directions. In other words, the chart of one currency pair<\/a> mirrors the chart of the other one.<\/p>\n\n\n\n

For example, strong inverse correlation is demonstrated by EUR\/USD and USD\/CHF<\/a>. In the picture below, there is a chart mirroring the other one: while one pair grows, the other one drops, and vice versa.<\/p>\n\n\n\n

\"\"<\/a>
Inverse correlation of EUR\/USD and USD\/CHF<\/a><\/em><\/figcaption><\/figure>\n\n\n\n

<\/span><\/a>How to calculate correlation indices<\/span><\/h2>\n\n\n\n

To assess the correlation of two instruments, there is a special index. It is estimated in shares, or percent: 100% = 1 for positive correlation and -1 for negative.<\/p>\n\n\n\n

For calculating the index, Pearson’s formula is used. First, a set of values of both assets is formed – X and Y. Then average X and Y values are calculated. Next, they add up the product of the deviation of each set from the average and divide them by the product of the standard deviation.<\/p>\n\n\n\n

The values of the correlation index are between +1 and -1.<\/p>\n\n\n\n

The meaning of the values is as follows:<\/p>\n\n\n\n