Question 1

What does currency correlation measure?

Accepted Answer

It measures the extent to which two currency pairs have moved together over a given period, expressed from −100 to +100. At +100 the two pairs moved in lockstep, at −100 they moved in exact opposition, and at 0 there was no consistent relationship at all. It describes how prices moved relative to one another; it says nothing about direction, size or cause.

Question 2

How do I read the scale in practice?

Accepted Answer

As a rough guide, above +70 or below −70 is a strong relationship worth acting on, between 30 and 70 is moderate, and anything inside ±30 is weak enough to treat as unrelated. The sign matters as much as the magnitude: −85 is exactly as strong a relationship as +85, just inverted. Traders often forget that a strongly negative correlation is not diversification either.

Question 3

Why does correlation matter for risk?

Accepted Answer

Because it determines whether your positions are actually separate bets. Long EUR/USD and long GBP/USD at 85% correlation is not two trades with 1% risk each — it is much closer to one trade with nearly 2% risk, and it will lose on both legs simultaneously. The same applies inverted: long EUR/USD and short USD/CHF at −94% are very nearly the same position expressed two ways.

Question 4

Do correlations stay stable over time?

Accepted Answer

No, and relying on them as if they were is the main way correlation analysis fails. Relationships shift with the macro regime — in a broad risk-off move almost everything correlates against the dollar at once, and pairs that normally look independent converge. Correlations also differ substantially by timeframe, which is why the same two pairs can read 40% hourly and 85% weekly.

Question 5

Why are EUR/USD and USD/CHF so strongly negatively correlated?

Accepted Answer

Two reasons compound. First, the dollar sits on opposite sides of the two pairs, so any purely dollar-driven move pushes them in opposite directions by construction. Second, the Swiss and eurozone economies are closely linked and the franc has historically tracked the euro. Put together, they produce one of the most reliably negative relationships in FX — which also makes them a poor pair to trade in the same direction.

Question 6

Can I use correlation to hedge?

Accepted Answer

You can, but be clear about what you are buying. Offsetting a long EUR/USD with a long USD/CHF reduces your exposure — and reduces your expected return by almost exactly as much, while you pay the spread and swap on both legs. Hedging with correlation is worth it when you want to neutralise a specific risk for a specific period, not as a permanent way to hold a position you are unsure about.

Pair	EUR/USD	GBP/USD	AUD/USD	NZD/USD	USD/JPY	USD/CHF	USD/CAD	EUR/JPY
EUR/USD	—	85	68	62	-34	-94	-71	41
GBP/USD	85	—	64	58	-29	-80	-66	33
AUD/USD	68	64	—	92	-22	-63	-78	37
NZD/USD	62	58	92	—	-19	-58	-72	31
USD/JPY	-34	-29	-22	-19	—	41	36	74
USD/CHF	-94	-80	-63	-58	41	—	69	-18
USD/CAD	-71	-66	-78	-72	36	69	—	-24
EUR/JPY	41	33	37	31	74	-18	-24	—

Forex Correlation

Correlation Matrix · 1D

Moves Together

Moves Opposite

Most Independent

Understanding Correlation

Frequently asked