Currency Correlation

Currency correlations are expressed using a scale with a range between -1 and +1. The numbers represent the varying degree and specific type of correlation. There are three basic types of correlations: positive, negative and neutral.

A positive correlation expresses a linear relationship between two variables. For instance, if currency pair A moves up or down in value and currency pair B moves in the same direction as A, then the correlation is said to be positive. A correlation of +1 means that when A experiences a move, B also moves in the same direction 100% of the time. Usually, a perfect correlation of +1 is not present, thus a positive correlation of varying degree is represented by a value that lies between 0 and +1.

A negative correlation expresses an inverse relationship between two variables. In this case, when currency pair A experiences a price movement, currency pair B moves in the opposite direction. The value of -1 is used to represent the perfect inverse relationship. Again, most currency correlations are not 100% perfect, thus a negative correlation is represented with a value ranging from -1 to 0.