Correlation Matrix Explained with Hedging Strategy

This MT4 plug-in will help traders decide how to perform hedging.
All major currency pairs have been explained in this video and their correlation between one another.

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What is currency correlation in forex?
A currency correlation in forex is a positive or negative relationship between two separate currency pairs. A positive correlation means that two currency pairs move in tandem, and a negative correlation means that they move in opposite directions.

Correlations can provide opportunities to realize a greater profit, or they can be used to hedge your forex positions and exposure to risk. If you can be certain that one currency pair will move alongside or against another, then you can either open another position to maximize your profits, or you could open another position to hedge your current exposure in case volatility increases in the market.

However, if your forecasts are wrong when trading currency correlations, or if the markets move in an unexpected way, you could incur a steeper loss, or your hedge could be less effective than anticipated.

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Watch Complete Video with all the explanations about the correlation matrix along with Hedging Strategy

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EUR/USDGBP/USDUSD/CHFUSD/JPYEUR/JPYUSD/CADAUD/USD
EUR/USD10.81– 0.540.510.87– 0.720.79
GBP/USD0.811– 0.350.830.94– 0.560.76
USD/CHF– 0.54-0.351-0.08-0.320.37– 0.48
USD/JPY0.510.83– 0.0810.86– 0.520.64
EUR/JPY0.870.94– 0.320.861– 0.710.82
USD/CAD– 0.72– 0.560.37– 0.52– 0.711– 0.67
AUD/USD0.790.76– 0.480.640.82– 0.671

The correlation coefficient is used in pairs trading, and it measures the correlation between different assets – in this case, currency pairs. It ranges from 1 to -1, with 1 representing a perfect positive correlation and -1 representing a perfect negative correlation. If the coefficient value is 0, it means that there is no correlation between the price movements of different currency pairs.