Hi everyone, Im beginning with the hedging strategies.
Looking at the interest rates GBP/JPY pay $25 aprox. EUR/CAD $-1. So if we hedge we could get a lot in interest.
What I was wondering is how reliable is to buy GBP/JPY and hedge it with EUR/CAD. Since the daily chart (link below) shows that the currency pairs moves in opposite directions, so if we buy GBP/JPY we need to buy EUR/CAD (expecting that they moves in opposite directions).
Have you ever tried this approch? I was wondering what should be the ratio if I buy 100K GBP/JPY, how much should I buy of EUR/CAD?
Here is a chart of the two pairs.
Regards
Isidro
The only basis for a relationship between GBP/JPY and EUR/CAD is the general link between the EUR and GBP in that they generally trade basically the same way against the USD. Even that’s only a loose thing. The two pairs have very different influencing dynamics. The CAD is a heavily commodity influenced currency and the JPY has it’s own dynamic.
Thank you rhody, so does that mean that you think its risky to do this hedge?
I think I would never call it a hedge because there’s no logical relationship between those two pairs. Just because they’ve generally moved in the same direction for a period of time (have you run a long-term regression to know exactly how closely correlated they are, by the way?) doesn’t mean that will persist. In fact, it probably won’t.