Correlation
Correlation describes how closely two markets or currency pairs tend to move in relation to each other.
Full explanation
Correlation is a measure of the relationship between the price movements of two assets, such as EUR/USD and GBP/USD. A positive correlation means they often move in the same direction, while a negative correlation means they often move in opposite directions.
Correlation is usually expressed on a scale from -1 to +1. A figure near +1 indicates a strong positive relationship, near -1 a strong negative relationship, and near 0 little consistent relationship. It describes past co-movement, not a fixed rule or a forecast.
Example: EUR/USD and GBP/USD may rise together when the US dollar weakens broadly during the London session. This is positive correlation, although the two pairs can still react differently to UK or euro area economic releases.
Why traders watch it
It helps traders understand when positions in different currency pairs may create similar or offsetting market exposure.
Trading considerations
- Correlation can change over time, particularly around major economic releases or central bank decisions.
- Pairs sharing the same currency, such as EUR/USD and GBP/USD, often have some related US dollar exposure.
- A high correlation does not mean two pairs will always move by the same amount or at the same time.
Educational guidance only — never a trading signal or recommendation.