Correlation Analysis: EUR/USD, EUR/NOK, USD/NOK, GBP/ZAR

Correlations EUR/USD, EUR/NOK, USD/NOK, GBP/ZAR

A deeper dive into EURNOK, USDNOK and GBPZAR weekly Trades reveals a Correlation nightmare.

Purpose for Correlations is identify and isolate the problem currency.

 

No reason to trade correlation problems but trades this week are requests and explains deeper analysis.

 

1. EURNOK and USDNOK both massive overbought. First sign of trouble as 2 opposite pairs should reveal overbought Vs oversold.

 

2. EURNOK and USDNOK at + 99%. Correlations for opposing Currencies should run negative Correlations.

Deeper Analysis

 

3. EURUSD Vs EURNOK Correlations at -96%. Identify problem. 2 like Currencies should reveal +90% correlations.

 

4. EURUSD V USDNOK Correlations runs -98 %. Correct as 2 opposite Currencies.

 

Analysis Interpretation

 

5. We know EURNOK or EURUSD is the Problem, not USDNOK. Isolate.

 

6. Either EURUSD must Trade higher or EURNOK Lower for Positive and correct Correlation.

 

GBPZAR Correct Vs GBPUSD at +78% but Low.

 

Should be high +80’s or low +90’s.

 

Correct at +94% Vs EURNOK as both same Currency.

 

GBPZAR Not a problem. Its EURNOK.

 

7. EURUSD and EURNOK from Negative Correlations must by Math law turn Positive.

Problem is level of Prices.

A Correlation is a Unit less measure from Minus 1 to +1. It flows through currency price relationships and changes with levels of exchange rates.

Deeper analysis is Correlation is a deep analytical commentary on the Standard Deviation between 2 currency prices. The real measure is distance or deviation. Large distances between 2 currencies Prices will travel closer while close relationships will break wide open such as EUR/NOK and USD/NOK at +99%. Or EUR/USD Vs EUR/NOK at minus 94%.

EUR/USD and EUR/NOK will eventually turn positive while USD/NOK Vs EUR/NOK will break wide open. The Correlation signifies big moves ahead in order to rightsize the Correlation.

 

Interested may view great tutorials and pictures at vassarstats. He lays it out in easy to see and understandable language.

 

 

 

Brian Twomey

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