Correlation strategies: trading the spread between two pairs
When two correlated pairs diverge, some traders trade the convergence — long one, short the other, with net exposure smaller than either leg. It's a different risk profile: less directional, more spread.
Do you trade pair spreads?
- which pairs you pair up and why
- how you size the two legs
- the divergence signal that triggers you
The correlation guide explains how to measure the relationship.
Background: Currency correlation: why EUR/USD and GBP/USD often move together
Pairs that share a currency or an economic driver tend to move in step. How correlation works, why it changes and how it can quietly double your risk.
Which currency pairs are positively correlated?
EUR/USD and GBP/USD, and AUD/USD and NZD/USD, often move in the same direction, although correlations change over time.
Why does correlation matter for risk management?
Holding highly correlated positions is similar to holding one bigger position. A single move can hit several stops at once and multiply the loss.
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