Understanding Forex Correlations and Hedging Strategies

 Currency pairs do not move in isolation. Understanding correlations allows traders to predict secondary market movements and build balanced portfolios.

1. Types of Correlations

  • Positive Correlation: EUR/USD and GBP/USD usually move together.

  • Negative Correlation: EUR/USD and USD/CHF typically move opposite.

2. Using Correlation in Analysis

Monitoring correlation coefficients helps traders avoid redundant exposure and manage leverage.

forexcmarket-ca.org

3. Hedging Techniques

Advanced hedging uses correlated instruments to offset losses. Examples include pairing USD/JPY with gold or using cross-currency pairs to neutralize volatility.

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