Correlations, as you’ve read, vary and change throughout time. Keeping track of current coefficient strengths and directions becomes much more crucial as a result.
Currency correlations can be calculated in thyourome, using only you and your favorite spreadsheet application.
For this example, we’ll use Microsoft Excel, however any software that uses a correlation formula will suffice.
Step 1: We’re assuming you won’t be inventing the daily pricing data out of thin air, but rather obtaining it from somewhere internet. The Federal Reserve is one source.
Step 2: Launch Excel.
Step 3: Paste your data into an empty spreadsheet or open the data file you exported in Step 1. Get the previous six months!
Step 4: Arrange your data so that it looks like this or something close. Colors and fonts are all up to you! Have some fun with this. However, yellow might not be the greatest choice!
Step 5: It’s time to set a deadline. Do you want to see the currency correlation from last week? What happened last month? What happened last year?
This is determined by the amount of price data you have, although more data can always be obtained. We’ll use the previous month for this example.
Step 6: Type =correl( in the first empty cell below your first comparison pair (I’m correlating EUR/USD to the other pairs, so I’ll start with EUR/USD and USD/JPY).
Step 7: Next, enter a comma after selecting the range of cells for EUR/USD price data. You’ll be enclosing this range in a box.
Step 8: After the comma, select the price data range for USD/JPY as you did for EUR/USD.
Step 9: Click the Enter key on your keyboard to calculate the correlation coefficient for EUR/USD and USD/JPY.
Step 10: Repeat Steps 5-9 for the other pairs and for other time frames.
When you’re done, you can take your new data and create a cool looking table just like this. Man, that’s pro-status!
The one-week, one-month, three-month, six-month, and one-year trailing periods provide the most comprehensive picture of currency pair correlations.
However, you are free to choose which or how many time periods to examine.
While updating your data every day may be excessive, unless you’re a currency correlation addict, updating them at least every other week should suffice.
If you find yourself manually updating your currency correlation tables on Excel every hour, you should get out more and pick up a hobby.
