What is correlation between currency pairs?

Correlation between currency pairs measures how two assets move in relation to each other. This statistical relationship is expressed as a coefficient ranging from -1 to +1. A correlation of +1 indicates that two pairs move in the same direction perfectly. A correlation of -1 means they move in opposite directions. A reading of 0 indicates no relationship between the pairs. For example, the EUR/USD and GBP/USD often exhibit a strong positive correlation because both pairs are driven by the strength of the US dollar. If the dollar weakens, both pairs typically rise. Conversely, the EUR/USD and USD/CHF often have a strong negative correlation. Because the Swiss franc is frequently viewed as a safe haven currency, it often moves inversely to the euro during periods of market volatility. Traders use these correlations to manage risk and diversify portfolios. If a trader opens two long positions on highly correlated pairs, they effectively double their exposure to a single market movement. Understanding these relationships helps avoid unintended over-leveraging. Always remember that trading involves significant risk. Correlations are not static and can shift rapidly due to central bank policy changes, economic data releases, or geopolitical events.