What is correlation?
Correlation is a statistical measure of how two securities move in relation to each other.
Correlation is computed into what is known as the correlation coefficient, which ranges between -1 and +1. Perfect positive correlation (a correlation coefficient of +1) implies that as one security moves, either up or down, the other security will move in lockstep, in the same direction. Alternatively, perfect negative correlation means that if one security moves in either direction the security that is perfectly negatively correlated will move by an equal amount in the opposite direction. If the correlation is 0, the movements of the securities is said to have no correlation, they are completely independent. If one security moves up or down there is as good a chance that the other will move either up or down, the way in which they move in tandem is totally random.
What is 'Time Dependence' and 'Period Dependence'?
In order to be an effective trader, it is important to understand how different currency pairs move in relation to each Other.
Regardless of your trading strategy and whether you are looking to diversify your positions or find alternate pairs to leverage your view, it is very important to know the correlation between various currency pairs and their shifting Trends.
UnderstandMarket.com gives you the opportunity to receive this information in graphical form. Simply select two currency pairs you want to compare and the number of days in the selection, mark 'Time Dependence' and click the 'Show graph' button.
This will allow you to discover current correlation and the historical data on the correlation you have chosen.
'Period Dependence' allows you to receive current data on correllation in dependence on the number of days in the time series.
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