Familiarize oneself with changes in currency correlation

foreign exchangeThe market is a psychiatric patient suffering from bipolar disorder, who occasionally eats chocolate, is extremely excited, and emotions fluctuate throughout the day.

We are not exaggerating.

The correlation between currency pairs can be strong or weak over a period of days, weeks, months, or even years. They will change, and they will change when you least expect them to. The strong correlation you discovered this month may completely change next month.

Look at the table1。

Compare the correlation coefficients of a given currency pair over different time periods.

Have you noticed anything?

In most cases(Thank you, USD/Japanese yen)They are completely different and vary over time. They change in all directions.

This tells us that correlation does change and is more frequent. They may undergo significant changes in a relatively short period of time, which is reflected in the euro/dollar1Months and3The correlation coefficient of months is relatively obvious.

That's a huge change!

Since the market sentiment of the currency market changes frequently, make sure you pay attention to the currency correlation.

For example, during a week, in US dollars/Japanese yen and US dollar/The correlation coefficient between Swiss francs is0.22。 This is a relatively low correlation coefficient, indicating that the correlation between these two currency pairs is not significant.

However, if we look at the same period3The data from months will show that the coefficient has increased to0.52，6Monthly increase0.78The final value of one year is0.74

In this example, you can see that there have been "cracks" in the long-term correlation between these two sets of currency pairs. The once strong positive correlation has been continuously weakening in the long term, and the short-term connection is very weak.

If they are real couples and only date once a month or so, they will think that they are not suitable for each other. What they don't know is that the passion will heat up later.

If you look at the euro/USD and GBP/The US dollar, this example reflects the degree of change in currency correlation.

At one week, the correlation is strong, with a correlation coefficient of0.94！

But this relationship deteriorated significantly during a month, dropping to0.13，3Rising to a solid level again in the past month0.83，6It deteriorated to a weaker level again in the past month.

Here is a crazy example of how currency correlation changes.

Let's take a look at the US dollar/yen,New Zealand dollar/USD

Between them1The annual correlation coefficient is-0.69。 This is between moderate and strong. But if you see their one month correlation, the correlation coefficient is basically completely reversed!

So, be careful.

There are many reasons for changes in currency correlation, including changes in a country's interest rates, monetary policy, or any political and economic events that affect the emotions of currency traders.