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Correlations

quantf research Min. Correlations

Currency
Pair 1
Currency
Pair 2
Correlation
Estimate
ZAR/JPY CHF/ZAR -0.99
EUR/GBP GBP/CHF -0.98
EUR/CAD CAD/CHF -0.98
USD/SEK EUR/USD -0.98
EUR/ZAR ZAR/JPY -0.98
EUR/AUD CAD/CHF -0.97
USD/ZAR ZAR/JPY -0.96
EUR/SGD USD/DKK -0.96
USD/CHF EUR/USD -0.96

Sample Min. Correlations

Currency
Pair 1
Currency
Pair 2
Correlation
Estimate
ZAR/JPY CHF/ZAR -0.98
USD/SEK EUR/USD -0.98
EUR/CAD CAD/CHF -0.97
EUR/GBP GBP/CHF -0.97
EUR/ZAR ZAR/JPY -0.97
USD/ZAR ZAR/JPY -0.96
EUR/NZD CAD/CHF -0.95
EUR/AUD CAD/CHF -0.95
USD/CHF EUR/USD -0.95

quantf research Max. Correlations

Currency
Pair 1
Currency
Pair 2
Correlation
Estimate
EUR/NZD EUR/CAD 0.98
USD/DKK USD/SEK 0.98
GBP/SGD GBP/NZD 0.97
AUD/JPY SGD/JPY 0.97
GBP/CAD GBP/AUD 0.97
AUD/SGD AUD/JPY 0.97
NZD/JPY SGD/JPY 0.97
GBP/USD GBP/SGD 0.97
EUR/SGD EUR/NZD 0.96

Sample Max. Correlations

Currency
Pair 1
Currency
Pair 2
Correlation
Estimate
USD/DKK USD/SEK 0.98
AUD/JPY SGD/JPY 0.97
NZD/JPY SGD/JPY 0.96
USD/ZAR GBP/ZAR 0.96
EUR/NZD EUR/CAD 0.96
GBP/SGD GBP/NZD 0.96
EUR/JPY CHF/JPY 0.96
AUD/SGD AUD/JPY 0.95
GBP/AUD GBP/CAD 0.94

FOREX Correlation Matrix

 
Please make your selections above

What is quantf research FOREX Correlations all about?

quantf research  FOREX Correlationsis a product of quantf research website (www.quantf.com). An important concern of many investors is spotting new opportunities, either for growth or for protection of existing positions. Therefore, the quantf research FOREX Correlations product analyses the correlation levels among common FOREX currency pairs. 

Why are quantf research FOREX Correlations important?

Having an idea of how FOREX currency pairs correlate with one another is an invaluable tool for trading. Thus the provision of correlation estimates, as a simple and highly interpretable measure of (linear) co-movement, is vital. Knowing how FOREX currency pairs depend on each other, in sign and in strength, can help an investor to structure his/her  currency portfolio, to eliminate FOREX currency pairs with duplicate performance and to hedge positions using FOREX currency pairs of opposite signs that those on existing positions. 

How do I read the quantf research Min. FOREX Correlation Selections and Sample Min. FOREX Correlations tables? What are their differences?

The quantf research Min. FOREX Correlation Selection provides a list of FOREX currency pairs that present the minimum correlation. The correlation coefficient is estimated using the recently introduced methodology of [REFERENCE HERE]. For comparison purposes the relevant Min. selection using the traditional pairwise sample correlation estimate is presented.

Should I invest in the quantf research Min. FOREX Correlation Selection?

The correlation estimates provided by quantf research are intended to help investors in their trading decisions. In the quantf research FOREX Correlations section of the quantf research website we do not provide a forecast estimate of the future movement of pairs. FOREX pairs that exhibit small correlation can be used to construct trading strategies that are, on average, orthogonal to each other: that is, being exposed in one currency pair is unrelated to being exposed in the other currency pair in the correlation. Therefore, by looking at the minimum correlation pairs one can think and device multiple ways of both investing in such orthogonal positions or protecting existing positions. 

How do I read the quantf research Max. FOREX Correlation Selections and Sample Max. FOREX Correlations tables? What are their differences?

The quantf research Max. FOREX Correlation Selection provides a list of FOREX currency pairs that present the maximum correlation. The correlation coefficient is estimated using the recently introduced methodology in Papailias and Thomakos (2013b). For comparison purposes the relevant Max. selection using the traditional pairwise sample correlation estimate is presented.

 

Should I invest in the quantf research Max. FOREX Correlation Selection?

The correlation estimates provided by quantf research are intended to help investors in their trading decisions. In the quantf research FOREX Correlations section of the quantf research website we do not provide a forecast estimate of the future movement of pairs. The information provided by the currency pairs with maximum correlation is highly critical to the informed investor: aggressive investors which are willing to be exposed to high risk strategies can used the information provided to increase their exposure to similar currency pairs, which over the recent periods moved in tandem; conservative investors, on the other hand, which are cautious on their FOREX exposure will consider avoiding getting into positions involving pairs that are highly correlated. Therefore, this part of the correlation information should be closely monitored for its risk-assessment qualities, possible even more closely than the minimum correlation information discussed before. 

How do I read the quantf research FOREX Correlation Matrix?

At first you have to select 2 up to 10 different FOREX currency pairs. Once you submit your selection, the correlation table appears. In all cells of this table there are two values: the top value is the correlation coefficient calculated using Papailias and Thomakos (2013b) methodology and the bottom value is the relevant pairwise sample correlation coefficient. They are both calculated using the price returns of the past 11 trading days. Critical values are marked with blue (if the correlation level is above 0.5) and red (if the correlation level is below -0.5) colours. 

Why is the quantf research FOREX Correlation Matrix useful?

The quantf research ETF Correlation Matrix provides a direct comparison of the correlation coefficients calculated as in [REFERENCE HERE] versus the standard pairwise methodology. Therefore, for investors who regularly use the pairwise correlation as one of their trading tools this correlation matrix is particularly useful as it provides an extra and possibly more accurate piece of information.

How are quantf research FOREX Correlations calculated?

The methodology used in the above calculation is introduced in Papailias and Thomakos (2013b). 

Why are the last 11 periods used?

A fixed rolling window period of 11 past observations is used for two reasons: first, an extensive backtesting indicates that this number is a reasonable one in terms of robustness to alternatives and overall performance and risk management; second, it is meant to account for short-term changes in asset behaviour in a time frame that is consistent with trading strategies suggested elsewhere on quantf research website. One would, of course, get different results from the use of another rolling window. 

How often are new correlations calculated?

New signals are provided on a daily basis (US holidays and all other dates where NYSE market is closed are excluded – even if the FOREX markets on those days operate normally).

What is the source of the data used?

In all computations the data is collected from OANDA (http://www.oanda.com/). quantf research is not responsible for the accuracy of the data. quantf research does not redistribute the data. It has to be noted here that OANDA provides the average daily price for each currency pair and this information is thus used in all quantf research website calculations.

What are the FOREX currency pairs used?

Here follows a list of al currency pairs used in the quantf research FOREX Correlations product. Data is accessible on OANDA's website (http://www.oanda.com/currency/historical-rates/).

 

AUD/CAD, AUD/JPY, AUD/NZD, AUD/SGD, AUD/USD, CAD/CHF, CAD/JPY, CAD/SGD, CHF/JPY, CHF/ZAR, EUR/AUD, EUR/CAD, EUR/CHF, EUR/CZK, EUR/DKK, EUR/GBP, EUR/HUF, EUR/JPY, EUR/NOK, EUR/NZD, EUR/PLN, EUR/SEK, EUR/SGD, EUR/TRY, EUR/USD, EUR/ZAR, GBP/AUD, GBP/CAD, GBP/CHF, GBP/JPY, GBP/NZD, GBP/PLN, GBP/SGD, GBP/USD, GBP/ZAR, NZD/CAD, NZD/JPY, NZD/SGD, NZD/USD, SGD/JPY, TRY/JPY, USD/CAD, USD/CHF, USD/CNY, USD/CZK, USD/DKK, USD/HKD, USD/HUF, USD/INR, USD/JPY, USD/MXN, USD/NOK, USD/PLN, USD/SAR, USD/SEK, USD/SGD, USD/THB, USD/TRY, USD/TWD, USD/ZAR, ZAR/JPY.

References

Thomakos, D. D., Papailias, F. (2013b). Covariance Averaging for Improved Estimation and Portfolio Allocation. quantf research working paper series.

  
F. Papailias - D. Thomakos, (c) 2014
 
 
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Disclaimer: The contents of quantf research (c) website (http://www.quantf.com) are provided for research and information purposes only. Prices, returns, strategy recommendations and all statistical estimates in general shown in this webpage are indicative and the authors are not offering to buy or sell or soliciting offers to buy or sell any financial instrument. The views in this website are those of the authors alone and are subject to change at any time. The authors of this webpage do not accept any liability whatsoever for any direct or consequential loss arising from any use of the information provided. The information in this webpage is not intended to predict actual results, which may differ substantially from those presented.