Thread: Position averaging to earn interest
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Old 08-24-2008, 12:12 AM
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Andrewunknown Andrewunknown is offline
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Quote:
Originally Posted by akeakamai View Post
Long EUR/USD + Long USD/CHF = Long EUR/CHF

all the risk information you need is in EUR/CHF. As you can see, there is still some serious drawdown risks (Look at Oct 2007 to Mar 2008). I'm sure you would agree there's nothing special about holding a long EUR/CHF position. I think you are counting on your negative correlation being perfect, but if it was perfect, EUR/CHF would flatline, and it clearly does not, meaning the correlation is far from perfect.
Long EUR/USD + short USD/CHF = long EUR/CHF. I know you know that akeakamai: just clarifying in case anyone became confused.

The inverse coefficient on these two pairs is normally very high, although never (except perhaps for very brief periods) -1; but EUR/CHF's range and volatility is not reliant on inefficiencies in the fiber/swissie correlation; remember that activity on cross pairs is not wholly (and sometimes not even mostly) derivative of activity on their base pairs.
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