What Is Forex Correlation?

In forex, correlation refers to how two currency pairs move in relation to each other. Sometimes they move in the same direction, sometimes the opposite, and sometimes there’s no clear relationship at all. Correlation is measured between +1 and -1:

• +1 correlation: Pairs move in the same direction almost perfectly.
• -1 correlation: Pairs move in opposite directions almost perfectly.
• 0 correlation: No consistent relationship between movements.

Examples of Forex Correlations

• EUR/USD and GBP/USD: Often show a strong positive correlation, as both are quoted against the US dollar.
• EUR/USD and USD/CHF: Typically show a negative correlation – when one rises, the other tends to fall.
• AUD/USD and NZD/USD: Both linked to commodity exports, often moving in the same direction.

Why Should Traders Care About Correlation?

Ignoring correlation can expose you to higher risk without realizing it. For example, if you open a buy trade on EUR/USD and GBP/USD at the same time, it’s almost like doubling your exposure against the US dollar. That’s not diversification – that’s concentration of risk.

On the other hand, if you understand correlation, you can:

• Avoid overexposure to the same market movement.
• Use correlation to confirm signals across pairs.
• Diversify by trading pairs that don’t move alike.

How to Check Forex Correlation

You don’t have to guess correlations – you can measure them. Many brokers and forex websites publish updated correlation tables. These tables show you, in percentage terms, how closely pairs move together over different timeframes (daily, weekly, monthly).

For example:

EUR/USD vs GBP/USD: +0.85 (strong positive correlation)
EUR/USD vs USD/JPY: -0.40 (moderate negative correlation)

Tips for Using Correlation in Trading

• Plan your trades: Avoid entering multiple trades that all depend on the same currency outcome.
• Look for confirmation: If EUR/USD and GBP/USD both point in the same direction, it can strengthen your confidence in a setup.
• Use opposite pairs carefully: A buy on EUR/USD and a sell on USD/CHF can sometimes cancel each other out.
• Recheck correlations often: They change over time depending on market conditions.

Final Thoughts

Correlation is one of those tools many traders overlook, yet it’s powerful for managing risk and making better trading decisions. By paying attention to how pairs move together, you can trade smarter, reduce hidden risks, and build stronger strategies.