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Why correlation of EURUSD and USDCHF is usually high?
- Thread starter OddTrader
- Start date
The key fundamental factor is a strong economic, monetary and political relationship between Switzerland and EU's Eurozone.
http://www.investopedia.com/articles/forex/06/EURCHFRelationship.asp
http://www.investopedia.com/articles/forex/06/EURCHFRelationship.asp
Quote from TrueStory:
It is nearly 100% due to the fact they trade the dollar inversely. Both of them being Euro-zone currencies helps contribute in a secondary way.
That is incorrect.
By that logic, the correlation of any pair of ---/USD and USD/--- should be nearly -100%. In fact, some of those correlations spend most of their time between 0 and -50%.
The "inverse" aspect helps determine the sign of the correlation, not its degree.
It's also not a fundamental factor, but merely an incidental quoting convention.
Quote from OddTrader:
Why is it negatively correlated, rather than positively, like GBP?
Is this a serious question? I'm not an FX trader but I know the base currency is different for different pairs. Express everything in the same base and you'll see (e.g., look at CME FX futures where everything is expressed XXXUSD).
Quote from Bernoulli:
Is this a serious question? I'm not an FX trader but I know the base currency is different for different pairs. Express everything in the same base and you'll see (e.g., look at CME FX futures where everything is expressed XXXUSD).
If that is the case, why should they both have a value greater than 1, rather than one is 1+ (say 1.5) another should be less than 1 (say 0.67)?
Quote from late apex:
The key fundamental factor is a strong economic, monetary and political relationship between Switzerland and EU's Eurozone.
http://www.investopedia.com/articles/forex/06/EURCHFRelationship.asp
Thanks for the informative article.
Can we make money by trading the spread of them, as they are so closely correlated for already a long long time? It would be so obvious Yes, if we understand the fundamental factors well enough.
Hi late apex,That is incorrect.
By that logic, the correlation of any pair of ---/USD and USD/--- should be nearly -100%. In fact, some of those correlations spend most of their time between 0 and -50%.
The "inverse" aspect helps determine the sign of the correlation, not its degree.
It's also not a fundamental factor, but merely an incidental quoting convention.
Could you explain further? Because I too thought the obvious answer was /USD vs USD/. According to the CSI correlation reports, the EUR & CHF (futures) are highly positively correlated to each other (90% or greater) and both are highly inversely correlated to the USD (90% or greater).
Isn't the "quoting convention" that you refer to exactly what the respondent you quoted was referring to? If it was EUR/USD and CHF/USD, would they not be highly positively correlated? What am I missing in your explanation?
Thanks,
Harold