Since I trade GBP/JPY, I spend time a lot watching USD/JPY and GBP/USD chart, also DJI chart. Like some other tools in Forex, what I looked for is the correlation. Is GBP/JPY move the same way as USD/JPY or GBP/USD? Is USD/JPY move the same way as DJI?
I made some entries based on those pairs lately. Some entries didn't even confirmed by the EMAs. Nevertheless, I gained some pips with that method. However, without historical data and numbers, it was pretty much looks like gambling. So I made some analysis using correlation coefficient between those pairs as well as the Dow.
I made some entries based on those pairs lately. Some entries didn't even confirmed by the EMAs. Nevertheless, I gained some pips with that method. However, without historical data and numbers, it was pretty much looks like gambling. So I made some analysis using correlation coefficient between those pairs as well as the Dow.
Correlation, in the financial world, is the statistical measure of the relationship between two securities. The correlation coefficient ranges between -1 and +1. A correlation of +1 implies that the two currency pairs will move in the same direction 100% of the time. A correlation of -1 implies the two currency pairs will move in the opposite direction 100% of the time. A correlation of zero implies that the relationship between the currency pairs is completely random. (Investopedia)
The table shows the correlation between GBP/JPY-USD/JPY and GBP/JPY-GBP/USD. On May, GBP/JPY moved 79.38% of the time whenever USD/JPY moves. We don't see any perfect positive correlation there but we can conclude that on May until June this year, GBP/JPY related more to USD/JPY than GBP/USD.I will talk about the DJIA correlation to USD/JPY next in part II and beta analysis in part III.
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