Excel has a correlation function that can be entered into a cell of a spreadsheet as follows: correl(range1, range2). 1 is equal to a fully positive correlation and implies that two currency pairs will generally move in the same direction 100 percent of the time. Using correlation in forex trading also makes a trader more efficient, since they would tend to avoid holding positions which might ultimately cancel each other out due to negative correlation unless they wanted to have a partial hedge. Dollar is strengthening overall, EUR/USD should begin to sell off. The currency correlation table shown below for illustration purposes was computed on April 19th, 2016. Below are the individual steps you can take when setting up your correlation spreadsheet: Obtain the pricing data for the two currency pairs that you are analyzing Make two columns with a label for each currency pair, filling the. The number that is produced represents the correlation between the two currency pairs Even though correlations change, it is not necessary to update your numbers every day; updating once every few weeks or at the very least once a month is generally a good idea.

#### How do you deal with currency correlation?

A correlation of zero implies that the relationship between the currency pairs is completely random. The forex market is currently facing negative benchmark interest rates in Japan and the Eurozone, and a weak recovery in the United States as the Fed gradually raises interest rates. A number of different elements directly affect the value between two nations currencies, such as the interest rate differential, the balance of trade between both countries and whether the country is a commodity producer or consumer to name just a few. In other words, when the exchange rate for one pair goes up, the exchange rate for the other pair also typically goes. Nevertheless, the two currency pairs are strongly positively correlated in practice, so if the Euro weakens versus the.S. For example, the EUR/GBP currency pair is a derivative of both the EUR/USD and GBP/USD exchange rates. The index varies in the range from 1 to -1. Dollars falls, then the levels of both currency pairs will tend to increase. How how to deal with correlation forex using To Use Correlations To Manage Exposure Now that you know how to calculate correlations, it is time to go over how to use them to your advantage. At the bottom of the one of the columns, in an empty slot, type in correl(. Correlations between currency pairs are inexact and depend on the ever changing fundamentals underlying each nations economy, central bank monetary policy, and political and social conditions. (Learn more in Forex: Wading Into The Currency Market.) Diversification is another factor to consider.