Currency correlation is a statistical measure of how two currency pairs move in relation to each other, expressed as a coefficient between -1 and +1. Positive correlation means pairs tend to move in the same direction, while negative correlation means they move in opposite directions, and understanding these relationships helps traders manage risk and avoid redundant positions. Correlations can change over time based on economic conditions, interest rate differentials, and geopolitical events.
Example
“EUR/USD and GBP/USD have a strong positive correlation, meaning they tend to move in the same direction. A trader who is long both pairs effectively doubles their exposure, so they might choose only one to reduce correlated risk.”