What you'll learn
- Recognise the common correlations among forex pairs
- Count risk across correlated positions
- Use correlation deliberately rather than by accident
Common relationships
| Pairs | Relationship | Why |
|---|---|---|
| EUR/USD and GBP/USD | Positive | Both are the dollar against a European currency |
| EUR/USD and USD/CHF | Negative | The dollar is the base in one and the quote in the other |
| AUD/USD and NZD/USD | Positive | Both commodity currencies, both tied to Asia |
| USD/CAD and oil | Negative | Canada exports oil; higher oil lifts the loonie |
| AUD/JPY and equity indices | Positive | Both rise with risk appetite |
| Gold and USD | Often negative | Gold is priced in dollars |
Counting exposure by theme
If you are long EUR/USD, long GBP/USD and short USD/CHF, you have three tickets and one position: short the dollar three times. A dollar rally hits all three. The honest way to size is to treat them as a single trade and split the risk budget among them, or to take one and leave the others. The same applies to a long in AUD/USD and a long in an equity index, which are both a bet on risk appetite.
Correlations change
The relationships above are tendencies, not laws. They strengthen in a crisis, when everything becomes a dollar or risk trade, and weaken in quiet markets. A correlation table, which many platforms and websites provide, shows the current values; check it before building a set of positions rather than assuming.
Using it on purpose
Correlation is also a tool. A trader who wants dollar exposure can spread it across two or three pairs to reduce the effect of one currency's own news. A trader who likes a euro idea but not a dollar idea can express it in EUR/GBP. And a trader who notices that all their trades are the same trade can stop and ask whether they meant that.
Key takeaways
- Correlated pairs are one risk in several tickets.
- Count exposure by theme and share the risk budget across it.
- Correlations strengthen in stress and shift over time; check a table.
- Use correlation to shape exposure deliberately.
Knowledge check
Trading forex, CFDs and other leveraged products carries a high risk of losing money. This lesson is general education, not advice. Risk disclosure.