How to Use the Correlation Matrix

The correlation matrix shows how currency pairs move relative to each other over the past 30 days.

Understanding Correlations

• +1.0: Perfect positive correlation — pairs move in the same direction
• 0: No correlation — pairs move independently
• -1.0: Perfect negative correlation — pairs move in opposite directions

Trading Applications

Risk Management

• Avoid highly correlated pairs (>0.7) — Opening both is like doubling your position
• Example: EUR/USD and GBP/USD often have +0.8 correlation — trading both doubles risk

Hedging

• Use negatively correlated pairs (<-0.7) as natural hedges
• Example: EUR/USD and USD/CHF often move opposite — one can hedge the other

Diversification

• Choose uncorrelated pairs (between -0.3 and +0.3) for true diversification

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