Hi guys, could someone please tell me how to do this? Are NZD/USD and USD/XAG correlated enough to hedge them? Or is there a better correlation somewhere else? Just wondering…
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these pairs were correlated only 20% in the past months, didn’t recearch on the longer timeframe.
To buy NZD/XAG you would need:
NZDUSD BUY
USDXAG BUY
With the same lot size obviously.
That is the way to do it, but since the correlation is not 100% you may have to tweak the lot size in order to get a better correlation.
hhh I don’t see how low correlation would affect with the lot size here?
If you have two hedge trades (well 3 by the math):
- NZDUSD BUY 1 LOT
- XAGUSD SELL 1 LOT
= [B]XAGNZD SELL 1 LOT[/B]
- [B]XAGNZD BUY 1 LOT[/B]
Your position would be flat always.
But if you adjust the lot size even slightly
- NZDUSD BUY 1 LOT
- XAGUSD SELL 2 LOT
it is no more [B]XAGNZD SELL 1 LOT[/B] but with the above example would be XAGNZD SELL and XAGUSD SELL.
As i can see it, adjusting the lot size would make totaly different trades.
…and do not forget the cost of TWO spreads!
Here is a short guide on creating synthetic pairs: