If your trading multiple currency pairs then you really should be aware of correlation.
Currency correlation is calculated and displayed as ‘correlation coefficient’, which ranges between -1 and +1.
Perfect, absolute positive correlation (a correlation coefficient of +1) implies that the two currency pairs will move in the same direction 100% of the time. Perfect, absolute negative correlation (a correlation coefficient of -1) means that the two currency pairs will move in the opposite direction 100% of the time. If the correlation is 0, the movements between two currency pairs is said to have no correlation what so ever. They are completely independent and random from each other and there is no real idea how one pair will move in relation to the other.
Examples of same direction moving currency pairs
EUR/USD and GBP/USD
EUR/USD and AUD/USD
EUR/USD and NZD/USD
USD/CHF and USD/JPY
AUD/USD and NZD/USD
Typical inversely moving pairs
EUR/USD and USD/CHF
GBP/USD and USD/JPY
USD/CAD and AUD/USD
USD/JPY and AUD/USD
GBP/USD and USD/CHF
Being aware of currency correlation can be very useful, as it stops you fighting the inevitable and helps you maximise profits.
There are many correlation charts and calculators on-line…so… there’s no excuse, know your correlations!