IC Markets
Written byAbir KhanWriter
Market analysis byTanbir Habib RiyadCo-Founder & Trader
Fact-checked & QC byJowel RanaFact-Checker & QC
Edited byRanjan NiskrityChief EditorThis tool is for education and planning only and is not financial advice. Forex and CFD trading carries a high risk of losing money rapidly due to leverage. Check your broker's own contract specifications, fees and margin rules before you trade.
How to read a correlation coefficient
The matrix uses the Pearson correlation of daily returns, a number between −1 and +1.
| Value | Meaning | Example relationship |
|---|---|---|
| +0.8 to +1.0 | Very strong positive | EUR/USD and GBP/USD often sit here: both are "anti-dollar" pairs |
| +0.5 to +0.8 | Moderate positive | AUD/USD and NZD/USD, with some independent moves |
| −0.5 to +0.5 | Weak or none | Pairs driven by different stories |
| −0.5 to −0.8 | Moderate negative | EUR/USD and USD/CAD at times |
| −0.8 to −1.0 | Very strong negative | EUR/USD and USD/CHF often sit here |
Why currency pairs correlate
A shared currency
EUR/USD and GBP/USD both have the dollar as the quote currency, so broad dollar moves push them the same way.
Inverted quotes
EUR/USD and USD/CHF put the dollar on opposite sides, so they tend to move in opposite directions.
Linked economies
Australia and New Zealand share trade ties and commodity exposure, so AUD and NZD move closely.
Risk sentiment
In risk-off markets, the yen and Swiss franc tend to strengthen together while higher-yielding currencies fall.
Commodities
Oil prices link CAD and NOK; metals link AUD.
Policy divergence
When central banks move in different directions, old correlations can break down quickly.
How to use correlation to manage risk
- Check before adding a trade
Long EUR/USD and long GBP/USD at a +0.9 correlation is close to one double-sized position.
- Count total exposure
Add up the risk on highly correlated positions as if they were one trade, and keep that within your limits.
- Use negative correlation carefully
Long EUR/USD and long USD/CHF at −0.9 largely cancel out, while you still pay two spreads and two swaps.
- Diversify on purpose
Pairs with low correlation spread risk across different drivers.
- Recheck often
Look at the 1-month and 12-month windows together; a sudden change is itself useful information.
Worked example: three trades, one bet
- The positions
Rina opens longs on EUR/USD, GBP/USD and AUD/USD, risking 1% on each.
- The matrix
Over three months, all three pairs show correlations of +0.7 to +0.9 with each other.
- The real risk
A strong US data release lifts the dollar and all three hit their stops together: a 3% loss from what felt like three separate ideas.
- What she changed
She now caps combined risk on highly correlated trades at 1.5% and picks the single best setup.
Correlation turned three small risks into one large one. Checking the matrix before entering would have shown it.
Correlation mistakes
Two pairs moving together does not mean one drives the other.
A single period can mislead; compare short and long windows.
Offsetting trades on negatively correlated pairs rarely cancel perfectly and cost two sets of fees.
Correlations shift with central bank policy and risk sentiment.
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Forex Correlation FAQs
What is forex correlation?
A measure of how closely two currency pairs move together, from +1 (always the same direction) to −1 (always opposite). It is calculated here from daily percentage changes.
Which forex pairs are most correlated?
EUR/USD and GBP/USD, and AUD/USD and NZD/USD, usually show strong positive correlation, while EUR/USD and USD/CHF usually show strong negative correlation. Check the matrix for current values.
Where does the data come from?
From the European Central Bank's daily euro reference rates, published each business day at about 14:15 CET and served through the Frankfurter API. Rates are converted to each pair before correlations are calculated.
How often is the correlation table updated?
Every time the page loads, using the latest ECB rates. New data arrives once each business day.
Why do correlations here differ from other sites?
Results depend on the data source, the time window and whether prices or returns are used. This table uses once-daily ECB rates and daily log returns, which is a common and conservative approach.
Can I use correlation to hedge?
It can reduce exposure, but hedges built from correlated pairs are imperfect and add costs. Most traders use correlation mainly to avoid unintentionally doubling their risk.
Sources: ECB euro foreign exchange reference rates, Frankfurter API.