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Attachments: Cable (GBPUSD) vs Euro (EURUSD)
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Cable (GBPUSD) vs Euro (EURUSD)

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  • Post #1
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  • First Post: May 16, 2007 4:38pm May 16, 2007 4:38pm
  •  aparsai
  • | Joined Mar 2006 | Status: Member | 1,120 Posts
In this thread I hope to find the answers to the following questions:

 

  1. Is it true that GBPUSD and EURUSD are 98% correlated? How has the correlation been calculated? For how long this relationship would last?
  2. How can we relate GBPUSD movements with EURUSD movements? Is ATR a reliable tool?

I'm quite open to any other topic that discusses the relationship between these two pairs. It would be great if you accompany your ideas with links to reliable white papers or news articles.

  • Post #2
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  • May 16, 2007 4:42pm May 16, 2007 4:42pm
  •  aparsai
  • | Joined Mar 2006 | Status: Member | 1,120 Posts
You might find the following article useful.
http://www.springerlink.com/content/bgk3nvm2cbx3rn2e/

The authors beleive that...

"Statistical considerations imply that the GBP is already behaving as a true EUR."

I've not purchased the article yet. It costs $32 and I'm not quite sure if it worths it.
 
 
  • Post #3
  • Quote
  • May 16, 2007 5:02pm May 16, 2007 5:02pm
  •  pablorpl
  • | Joined Sep 2006 | Status: Member | 283 Posts
Quoting aparsai
Disliked
In this thread I hope to find the answers to the following questions:

  1. Is it true that GBPUSD and EURUSD are 98% correlated? How has the correlation been calculated? For how long this relationship would last?
  2. How can we relate GBPUSD movements with EURUSD movements? Is ATR a reliable tool?

I'm quite open to any other topic that discusses the relationship between these two pairs. It would be great if you accompany your ideas with links to reliable white papers or news articles.

Ignored

Correlations (timeframe 4h since 2004)


Correlaciones

EURUSD

GBPUSD

EURUSD

Correlación de Pearson

1

.968(**)

Sig. (bilateral)

.000

N

2349

2349

GBPUSD

Correlación de Pearson

.968(**)

1

Sig. (bilateral)

.000

N

2349

2349


** La correlación es significativa al nivel 0,01 (bilateral).





That's right, EURUSD and GBPUSD are correlated STRONG.


Statistically we can say: "the linear association between EURUSD and GBPUSD is SIGNIFICATIVE and almost perfect"

 
 
  • Post #4
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  • May 16, 2007 5:07pm May 16, 2007 5:07pm
  •  aparsai
  • | Joined Mar 2006 | Status: Member | 1,120 Posts
Quoting pablorpl
Disliked

Correlations (timeframe 4h since 2004)


Correlaciones




EURUSD
GBPUSD

EURUSD
Correlación de Pearson

1
.968(**)

Sig. (bilateral)


.000

N

2349
2349

GBPUSD
Correlación de Pearson

.968(**)
1

Sig. (bilateral)

.000


N

2349
2349


** La correlación es significativa al nivel 0,01 (bilateral).





That's right, EURUSD and GBPUSD are correlated STRONG.



Statistically we can say: "the linear association between EURUSD and GBPUSD is SIGNIFICATIVE and almost perfect"

Ignored
Hi pablorpl,

Thanks for your quick response. Could you explain the calculations a little bit more?

Thanks,
Al
 
 
  • Post #5
  • Quote
  • May 16, 2007 5:08pm May 16, 2007 5:08pm
  •  pablorpl
  • | Joined Sep 2006 | Status: Member | 283 Posts
The data
Attached File
File Type: zip EUGU.zip   38 KB | 1 download
 
 
  • Post #6
  • Quote
  • May 16, 2007 5:39pm May 16, 2007 5:39pm
  •  pablorpl
  • | Joined Sep 2006 | Status: Member | 283 Posts
The pearson correlation or "r" coefficient is calculated using some sums from "least squares regression model" (classic econometrics)
Attached Image
Attached File
File Type: zip WGreene.zip   969 KB | 939 downloads
 
1
  • Post #7
  • Quote
  • May 16, 2007 5:44pm May 16, 2007 5:44pm
  •  pablorpl
  • | Joined Sep 2006 | Status: Member | 283 Posts
The article of statistical ebook.

If you have any relationated question.... just ask me
Attached File
File Type: pdf Statistics.pdf   586 KB | 4 downloads
 
 
  • Post #8
  • Quote
  • Edited at 6:04pm May 16, 2007 5:57pm | Edited at 6:04pm
  •  pablorpl
  • | Joined Sep 2006 | Status: Member | 283 Posts
Therefore

The correlations are used on Capital Allocation Pricing Models (CAPM) for "portfolio choice". We hope find NO correlated items for build a risk reduced portfolio.... this is used for stocks market.

I don't see correlations utility in GBPUSD and EURUSD market
 
 
  • Post #9
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  • May 16, 2007 6:23pm May 16, 2007 6:23pm
  •  aparsai
  • | Joined Mar 2006 | Status: Member | 1,120 Posts
pablorpl,

Thanks very much.
 
 
  • Post #10
  • Quote
  • May 16, 2007 7:36pm May 16, 2007 7:36pm
  •  pablorpl
  • | Joined Sep 2006 | Status: Member | 283 Posts
Quoting aparsai
Disliked
pablorpl,

Thanks very much.
Ignored
 
 
  • Post #11
  • Quote
  • Jun 22, 2007 3:53pm Jun 22, 2007 3:53pm
  •  pablorpl
  • | Joined Sep 2006 | Status: Member | 283 Posts
You can diversify FX portfolio with items as:


EURUSD, GBPJPY, CHFCAD

or other combinations with low correlation

Quoting pablorpl
Disliked
Therefore

The correlations are used on Capital Allocation Pricing Models (CAPM) for "portfolio choice". We hope find NO correlated items for build a risk reduced portfolio.... this is used for stocks market.

I don't see correlations utility in GBPUSD and EURUSD market
Ignored
 
 
  • Post #12
  • Quote
  • Jun 23, 2007 9:43am Jun 23, 2007 9:43am
  •  aparsai
  • | Joined Mar 2006 | Status: Member | 1,120 Posts
Quoting pablorpl
Disliked
You can diversify FX portfolio with items as:


EURUSD, GBPJPY, CHFCAD

or other combinations with low correlation
Ignored
Thanks very much. What I'm looking for is to benefit from this correlation for example what if you go long on GBPUSD and short on EURUSD at the same time. It is very similar to hedging but my broker pays positive swap on long cable and short Euro so I can benefit from leverage and make money at the same time. I'll detail my approach very soon but it would be a good idea if I hear from you about this.

Thanks
 
 
  • Post #13
  • Quote
  • Jun 23, 2007 11:11am Jun 23, 2007 11:11am
  •  Plutonite
  • Joined Mar 2007 | Status: we are stardust, we are golden | 1,364 Posts
Quoting aparsai
Disliked
Thanks very much. What I'm looking for is to benefit from this correlation for example what if you go long on GBPUSD and short on EURUSD at the same time. It is very similar to hedging but my broker pays positive swap on long cable and short Euro so I can benefit from leverage and make money at the same time. I'll detail my approach very soon but it would be a good idea if I hear from you about this.

Thanks
Ignored
Last Friday was a prime example of how they were moving together pip by pip almost, due to the fact that non-majors were not being traded very heavily with lack of news interest. The result was that mainly the dollar supply was reflected pretty strongly in any USD pair and EUR/GBP for example was pretty much sidelined (moved 10 pips or so in 12 hours).

Note: you can lose money hedging, plain carry trading is a lot better in my humblest of opinions. Good luck.
Virtue finds and chooses the mean. Aristotle, Ethica Nichomachea
 
 
  • Post #14
  • Quote
  • Jun 24, 2007 8:11am Jun 24, 2007 8:11am
  •  aparsai
  • | Joined Mar 2006 | Status: Member | 1,120 Posts
Quoting Plutonite
Disliked
Last Friday was a prime example of how they were moving together pip by pip almost, due to the fact that non-majors were not being traded very heavily with lack of news interest. The result was that mainly the dollar supply was reflected pretty strongly in any USD pair and EUR/GBP for example was pretty much sidelined (moved 10 pips or so in 12 hours).

Note: you can lose money hedging, plain carry trading is a lot better in my humblest of opinions. Good luck.
Ignored
Plutonite,

Thanks very much for your feedback. I quite understand your concern. I started this experiment on a demo account and in less than 30 days it was 30% up. However, I'm still working on it to make sure it really is a profitable approach.

Good Luck,
Al
 
 
  • Post #15
  • Quote
  • Oct 10, 2007 4:44pm Oct 10, 2007 4:44pm
  •  vaksin
  • | Joined Jan 2007 | Status: Member | 23 Posts
i don't think u can totally count on the correlation....
must be careful in placing ur position...
 
 
  • Post #16
  • Quote
  • Oct 11, 2007 6:10am Oct 11, 2007 6:10am
  •  fxreport
  • | Joined Jul 2007 | Status: Member | 34 Posts
quite a good related pair. almost a contsnt value.
Trading for a living!
 
 
  • Post #17
  • Quote
  • Dec 17, 2007 5:04am Dec 17, 2007 5:04am
  •  akanze
  • | Commercial Member | Joined Nov 2007 | 16 Posts
Both pairs are very much related.

Almost the same data affects them both
 
 
  • Post #18
  • Quote
  • Mar 7, 2009 11:26pm Mar 7, 2009 11:26pm
  •  greatwest1
  • | Joined Nov 2008 | Status: Member | 12 Posts
Please note the important difference between Regression and correlation:

1- there is an underlying relationship between comparing two variables in a regression- that is always reliable, and predictable, such as height and weight of an individual as an example.

2- a correlation is used correctly above because it is defined as two variables,
or currencies as having an association or possible connection between each other- remember : this association may only exist for a short or in a medium
time frame.

3- the market is always fluid; it has a personality and that may change over
time, so set up an edge that really works for you, and stick to those signals
and with basic money management- you will arrive ahead of your expectations.

Hope this helps, G.K.
 
 
  • Post #19
  • Quote
  • Edited at 11:51pm Mar 7, 2009 11:49pm | Edited at 11:51pm
  •  Spsantos
  • | Joined Oct 2008 | Status: Behaviour changes often | 1,170 Posts
Quoting aparsai
Disliked
In this thread I hope to find the answers to the following questions:

  1. Is it true that GBPUSD and EURUSD are 98% correlated? How has the correlation been calculated? For how long this relationship would last?
  2. How can we relate GBPUSD movements with EURUSD movements? Is ATR a reliable tool?

I'm quite open to any other topic that discusses the relationship between these two pairs. It would be great if you accompany your ideas with links to reliable white papers or news articles.

Ignored
.1 - No, the mostly correlated pair to EURUSD is USDCHF that is inversely correlated at about -85%, GBPUSD is around 60%, and that correlation as been loosening in the last two months. Although we can see some simlutaneous moves on both (and more) pairs, it's wrong to assume that they are highly related.

.2 - Answer to point 1 greatly invalidates any further discussion of possible correlation studies...

Correlation table:
http://www.mataf.net/en/tools/correlation-table
Traders are smartasses
 
 
  • Post #20
  • Quote
  • Mar 20, 2009 7:03am Mar 20, 2009 7:03am
  •  sidelli
  • | Joined Jun 2007 | Status: Member | 59 Posts
I think is true... because i'm trading GU based on EU. But not trade EU based on GU.
 
 
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