Forex Correlation Strategy
One possible strategy would be the investment of 2 currency pairs based on the correlation of the reversal. You can track the correlation of 2 pairs of currencies over time and if it escapes from the norm can reverse direction to grip to fit the correlation again.
For example, if the EUR / USD and USD / CHF has a correlation of -. 90 and the EUR / USD has high volatility, while the USD / CHF is not moving much, you can go short on EUR / USD and USD / CHF and for the correlation to retake following the fall of the EUR / USD and USD / CHF to reverse correlation to the historical average. Of course, we must take into account that the correlation is not stagnant and there is no guarantee that will always return.
Assuming you already have an open forex account.
Forex Correlations
It is evident that the correlations change, which makes following the change of the correlations are equally important to global economic changes, as they are very dynamic and can change even from day to day.
Strong basic correlations might not be consistent with the longer-term correlation between two currencies. This is the reason why it should be noted the six-month correlation.
This is the advantage of an automatic system. Also very important is the proportion of a clearer perspective of the average six-month relationship between the two pairs of currencies, which tends to be more accurate. The correlation changes for a variety of reasons. The most common discrepancies are monetary, sensitivity to commodity prices and the economic and political factors.
See part 2: Calculating Forex Correlation
