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Correlation Matrix

Correlation Matrix

The Correlation Matrix gives traders invaluable market information on different time scales and enables them to make better risk-informed decisions. The Matrix show correlation between different markets, and lets the trader highlight areas of low or high correlation.

 

 

The Correlation Matrix helps traders to manage risk and trade with greater confidence. The tool shows a grid of the correlations between pairs of trading symbols. It is an overview of all the options available to a trader - and, like all BlackPearlFX tools, the Correlation Matrix will handle any symbols which are available in the underlying trading platform, allowing a calculation of the correlation of metals and equities - if available - against forex. (For detailed inspection of the correlation between any two instruments, traders can drill down using the Correlation Trade tool)

 

The grid is displayed not only as numeric values (ranging from -100 to +100), but also using simple colour-coding which helps traders to identify strong or weak correlation at a glance. Strong correlation is marked in red because traders will typically want to avoid it - or, at least, tread carefully when dealing with open positions in two symbols which are strongly correlated against each other.

 

The trader can change the basis of the calculation, selecting a timeframe such as M15 and a number of historic bars, based on the most appropriate time period for the length of trade which they are expecting.

 

Highlighting strong or weak correlation

 

The tool lets the trader highlight sub-sections of the grid, e.g. isolating symbols which are strongly or weakly correlated against each other.

 

"What if?" scenarios

 

The tool can calculate an average correlation between all the symbols in which the trader currently has an open position. The app also lets the trader select any basket of symbols and then calculates the average of the current correlations between them. This enables the trader to assess the internal risk of a prospective portfolio of trades which they are currently considering.

 

About correlation

 

Correlation can have a major effect on trading risk. For example, if EUR/USD and USD/CHF have been strongly correlated, then a trader who had open positions in both would have seen very similar profits on each position. In effect, the trader did not have two positions; they only really had one position. (They will either have seen similar profits or losses on each position, or they will have seen matching profits and losses which largely cancelled each other out.)

 

It is generally advisable for a trader to minimise the correlation between their open positions. Otherwise, they are either trading the same price action twice over, or they have two positions which largely cancel each other out.

 

Click here to download the user guide: BlackPearlFX – Correlation Matrix.pdf

REGULATION AND LICENCING

CFDs and Spot FX are leveraged products and carry a high degree of risk to your capital. It is possible to lose more than your initial investment so only speculate with money you can afford to lose. CFDs and Spot FX may not be suitable for all investors so please ensure you fully understand the risks involved, seeking independent advice if necessary. 

BlackPearlFX is a trading name of Black Pearl Securities Limited (Company number 08823678). Black Pearl Securities Limited is authorized and regulated by the Financial Conduct Authority, Financial Services Register Number 688456. Registered office address: 23 Austin Friars, London, EC2N 2QP. United Kingdom

Relationships listed throughout the website may be directly or indirectly established with Black Pearl Securities Limited or its trading name BlackPearlFX. The Entities listed include custodian banks, clearing partners, liquidity providers, technology providers, news & market data vendors, among others. Names and Logos of listed entities are the property of their respective owners. 

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www.blackpearlfx.com is owned and operated by Black Pearl Securities Ltd.

Website Terms and Conditions | Risk Warning Notice | Customer Terms and Conditions

REGULATION AND LICENCING

CFDs and Spot FX are leveraged products and carry a high degree of risk to your capital. It is possible to lose more than your initial investment so only speculate with money you can afford to lose. CFDs and Spot FX may not be suitable for all investors so please ensure you fully understand the risks involved, seeking independent advice if necessary. 

BlackPearlFX is a trading name of Black Pearl Securities Limited (Company number 08823678). Black Pearl Securities Limited is authorized and regulated by the Financial Conduct Authority, Financial Services Register Number 688456. Registered office address: 36 Whitefriars Street, London, EC4Y 8BQ. United Kingdom

Relationships listed throughout the website may be directly or indirectly established with Black Pearl Securities Limited or its trading name BlackPearlFX. The Entities listed include custodian banks, clearing partners, liquidity providers, technology providers, news & market data vendors, among others. Names and Logos of listed entities are the property of their respective owners. 

BlackPearlEX’s Payment and Foreign Currency Exchange Services are provided by Ebury Partners UK Limited. Ebury Partners UK Limited is authorised and regulated by the Financial Conduct Authority as an Authorised Payment Institution (Financial Services Register No. 522933).

The information on this site is not directed at residents of the United States, Japan, Afghanistan, Algeria, Angola, Bosnia and Herzegovina, Cuba,Guyana, Iran, Iraq, Lao PDR, Myanmar, North Korea, Papua New Guinea, Sudan, Syria, Uganda, Yemen or any particular country outside the United Kingdom and is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law and regulation.

www.blackpearlfx.com is owned and operated by Black Pearl Securities Ltd.

Website Terms and Conditions | Risk Warning Notice | Customer Terms and Conditions