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Chapter 37, Part I. Intramarket Correlations.

Discussion in 'Complete Trading Education- Forex Military School' started by Administrator, May 19, 2012.

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  1. Administrator

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    Part I. Intramarket Correlations. [​IMG]

    Commander in Pips: Once we’ve discussed different relations between the forex market and other markets – such as financial and commodity markets, but I want to make small add-on. Still, there is a relation inside forex market itself – of one pair to another one. That’s the topic that I intend to show you for further discussion. We call it as Intramarket correlation, while the previous one was Intermarket correlations and relations…

    [​IMG]

    Pipruit: Hm, sounds interesting. I also suspect that some pairs have a solid relation of motion to each other, but not always in the same direction. Some pairs move simultaneously in the same direction, while others move in opposite directions, although they form almost mirror charts.

    Commander in Pips: That’s right. By that observation we could say that there is some relation between currencies that exists. Even more, since currencies trade in pairs – if we speak about Forex and not about, say, the Dollar Index, then they just can’t be totally isolated from each other. For measurement of the strength of relation there are different statistical coefficients that exist and one of the most popular is correlation. This coefficient will show the strength of relation between different pairs.


    Pipruit:
    And why we need to know it?

    Commander in Pips: Mostly because this is quite important if you trade multiple pairs on your account. If you focus on some particular pair – this might be not so significant to you. But if you trade many pairs and do not know how they relate to each other – it’s a wash out. If some pairs have a solid relation and move together – this can significantly increases your risk if you trade both of them. So, the major application of correlation coefficient is risk management sphere.

    Pipruit: I see. And how it works, your correlation stat?​
     
    #1 Administrator, May 19, 2012
    Lasted edited by : Oct 14, 2016
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