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Correlated Pairs
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Top Five Correlated Pairs You Need To Know

Fri Dec 18 2020 09:49
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Not only in foreign exchanges, but correlation plays a significant role in every financial-markets out there in the world economy. But in forex trading correlation is considered as one of the most important tools by the traders. 

But which currency pairs are the most and top correlation pairs? Do you know what pairs relate to each other very strongly? Here we will explain the top five correlated pairs to you.  

The price of these currency pairs fluctuates according to the relation with each other. So how important these correlated pairs are and how they impact the whole market, is the topic for us today. 

We will not only discuss these pairs, their evaluation, and their impact only. But also we will pay attention to the types of forex correlation. Because various types of correlations are there and they all have different impacts on the financial market.  

These Are The Top Correlated Pairs In Any Forex Market 

Without wasting any time let's jump to the main section of this post. The main section is about the top correlated pairs in currency trading. Before we tell you all about these correlated currency pairs.  

Let's tell you that correlation is never stable in any market. Be it stock market, commodity market, or forex market, because of the instability, currency pairs' correlation also faces the impact. 

So it is never sure that the forex pairs mentioned here will always remain the same effective and impactful in the future.  

Conducting a technical analysis is vital 

Always conduct a technical analysis before you refer to any recommendation made by foreign exchange experts and forex strategists. So we recommend you always recheck the market trends, purchasing-power, indicators, forex signals, etc. before you choose any currency pair in the market.  

Parallel Moving Currencies: 

The forex trader always trades forex currencies in pairs. Trading forex without combining currencies in pairs is not possible in the foreign exchange market. Yes, some traders use trading accounts or MetaTrader to trade ETFs, in which they trade on an index of currency prices in the exchange market. 

But the majority of the traders are trading pairs and earn on the difference between pips & spreads. So the first kind of correlated pairs in parallel moving currencies. Some call it together moving currencies in foreign exchange trading.  
  • #1. AUD/USD & GBP/USD 
  • #2. AUD/USD & EUR/USD 
  • #3. EUR/USD & NZD/USD 
  • #4. USD/CHF & JPY/USD 
  • #5. EUR/USD & GBP/USD 

Correlation Between Parallel Moving Pairs: 

These above-mentioned currency pairs are the ones that move parallel to each other. For example, if the EUR/USD pair is growing then at the same time you will see NZD/USD growing. So these all correlated pairs are moving in the same direction. 

The positive correlation between currency pairs can be fluctuated in the currency-market due to its liquidity. But still, we can say that in these days of online trading, we can see from 1 to as below as 0.01. 

Opposite Moving Currencies:  

As we all know that the correlation pairs are evaluated according to the value which is from 1 to -1. It means that the correlation between the two currencies is either positive or negative. 

If it is very close to 1, then it means that there are high chances that these currencies will move together.If the two currency pairs' correlation is a -ve value, then it's called a negative correlation. The negative correlation occurs with the opposite movement of currencies. These correlation pairs are as follows.  
  • #1. AUD/USD & USD/CAD 
  • #2. AUD/USD & USD/JPY 
  • #3. GBP/USD & USD/JPY 
  • #4. EUR/USD & USD/CHF 
  • #5. GBP/USD & USD/CHF 

Correlation Between Opposite Moving Currencies: 

Opposite moving currencies always move opposite to each other. The above mentioned five groups of currency pairs are always moving opposite to each other. 

For example, if GBP/USD is growing then there will be more chances that USD/CHF will dropdown. Opposite correlation can be seen from -0.01 up to -1 value. If you make trading strategies after considering correlation your forex trade will depend upon these values.  

Top Five Correlated Currencies 

The above list has ten correlated pairs, Five of them are negatively correlated and the rest of them are related positively. But what if we have to find only the top five correlate pairs. Then we will take the currencies that have high correlation values among them. 

Let's start by taking two currencies with negative values and the two with positive values. The last one can be picked up by live trading data, forex charting, fx-market fundamental analysis, or the trading strategy of the trader. These five pairs are as below. 

#1. EUR/USD & GBP/USD 

These two pairs are highly correlated with each other in terms of the positive correlation value. No other pair has more correlation value than these two. The correlation value that these pairs have is around + 0.82.  

#2. EUR/USD & AUD/USD 

These pairs are at the number two position in positively correlated currency pairs. The value that their correlation has is around +0.79, which is slightly lower than the top currency in this list. 

You can see the impact of other currencies in these pairs. The USD is also important because sometimes it is used as a quote currency and sometimes it plays the role of the counter currency.  

#3. EUR/USD & USD/CHF 

The third group in this list is from negatively correlated currencies. These pairs have a negative correlation value of - 0.54 between them. 

#4. USD/CAD & AUD/USD 

The USD/CAD & AUD/USD has a negative correlation value among them which goes up to - 0.7. It is one of the top negative correlated pairs.  

#5. EUR/JPY & EUR/USD 

This group of two currency pairs is very important when trading currencies because one group doesn't have USD in it. So the forex rates for these pairs are dependent on various trading signals. The correlation value in these currency-pairs is around 0.79.  

Understand Types Of Forex Correlation 

If you are just going to learn forex and want to know how to trade with forex correlation. Then you must consider the types of correlations in the trading market. It has similar importance as forex charts and other fx trading signals. 

There are five types of correlation among correlated pairs. The most basic correlations are negative and positive. As you can see in the above examples and lists we have explained both correlations. But the others are linear correlation, non-linear correlation, and zero correlation.  

Conclusion - Correlated Pairs

Many trading platforms are also providing such data about currencies, you must choose a trading account or forex broker after evaluating such forex news and market data provided by forex brokers or online forex platforms. Knowing the top five correlated pairs is not enough to achieve profitable forex trading.  

You must consider all the top negative and positive correlated pairs. The correlation is a proven strategy in the trading market and used by many expert traders along with the newcomers that are dependent upon automated trading or limited to mobile trading only. 

Correlation works on various commodity futures trading also. So it is important to make trading plans after considering these correlations.  
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