Investors need to know how to find currency correlation between different currencies and commodities. Knowing how a currency moves with another will help in building a profitable carry trade, reducing risks to your account, and increasing returns. Additionally, correlation helps investors play trends that are not directly correlated to the foreign exchange market.
Currency Correlation Table
A currency correlation table is the best way to get perfect correlation numbers for different currencies. Oanda, a popular forex broker, publishes currency correlation data on its website. Click here to go to Oanda’s calculator.
Once on the website, proceed to click to the “table version” of the correlation calculator. You’ll then see a correlation table which looks a little like the following picture:
This table compares the correlation between EUR/USD (Euro and US Dollar) vs. other major currency pairs. The table also shows forex pair correlation to gold and silver. Gold is shown on the table as XAU/USD, and silver shows up as XAG/USD. AU and AG are the abbreviations for gold and silver on the periodic table of elements.
Quick Correlation Check
Another tool exists to quickly check the correlation between currencies and stocks, bonds, mutual funds, commodities, and other financial products. Google Finance allows traders to compare quickly the relationship between currency pairs and any other product which has a ticker symbol.
In this example, we can quickly compare how the AUD/USD pair correlates with SPY, the exchange-traded fund for the popular S&P500 stock index:
The AUD/USD pair is considered a “risk-trade pair,” as it moves wildly when investors fall in or out of favor with risk. The S&P500 index is an index of 500 US-based stocks. Stocks are naturally riskier than other investments, so the index rises and falls on changes in risk appetite.
Since both are part of the risk-trade, the AUDUSD pair and the S&P500 index show positive correlation, often moving in unison up and down at the same time.
