Real-Time Correlation Indicator for MetaTrader MT4

Using Correlation in Currency Trading

Understanding sensitivity to market volatility is important particularly when trading forex. Currencies are priced in pairs and no single pair trades completely independently of others.

Correlation Defined
Currency pairs are derivatives of other pairs. For example, the GBPJPY (British Pound/Japanes Yen) is a derivative of GBPUSD and USDJPY. Therefore, GBPJPY is somwhat correlated to one, if not both of these other currency pairs. Some currency pairs move in tandem (positive correlatation) and other currency pairs move in opposite directions (negatively correlated).  

Correlation, is the statistical measurement of the relationship between two assets. The Pearson correlation coefficient ranges between -1 and +1. Therefore, a correlation of +1 means the two assets move in the same direction 100% of the time whearas a correlation of -1 means the two assets move in opposite directions 100% of the time. A correlation of zero indicates there is no correlation between the two assets ie their prices move in completely unconnected ways in relationship to each other.

Correlation Changes

Sentiment and global economic factors are very dynamic and can change very quickly. It's important to look at the longer term correlations to gain a clearer perspective of the long term relationship between the two currency pairs. Correlations change for a variety of reasons, the most common of which include diverging monetary policies, a certain currency pair's sensitivity to commodity prices, as well as unique economic and political factors. 

The FX AlgoTrader Correlation Indicator provides real time correlation data on MT4 charts for up to 30 FX pairs in real-time.

The indicator will return the correlation data for the current chart timeframe. For example, if you run the correlation indicator on an hourly chart the system will return 60 minute correlation data - 5 minute charts return 5 minute correlation data.

The correlation indicator uses a custom library function which calculates the Pearson correlation coefficient in real time. The correlation data is then passed back to the Correlation indicator for display. The algorithm uses data over 200 chart periods for the real time correlation calculation.

The FX AlgoTrader Real-Time Correlation Indicator provides trader definable external input paramaters which allow customisation and fine tuning. These parameters are:-

  • Include/exclude the following currency pairs:-

  • Customizable display options including:-

    • Trader defined positive and negative correlation thresholds

    • Define colours for pairs which meet correlation threshold requirements

    • Show only positively/negatively correlated pairs which exceed trader defined threshold

    • Define which pairs are submitted to the correlation calculation engine - allows the trader to customize the size of the correlation table. The indicator dynamically resizes table and data output accordingly.

    • Set colours for positive/negative/uncorrelated and 100% correlated pairs

    • Works with any MT4 account ie Standard, mini and micro. For mini and micro accounts some brokers use a suffix at the end of the pair data eg 'EURUSDgfx'. The 'Pair Suffix' external input parameter allows any suffix to be added to allow full mini/micro account compatability.

    • Ideally used in conjunction with the FX AlgoTrader Statistical Arbitrage Trading Tools

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Supporting Products:

Correlation is useful in conjunction with FX AlgoTrader Statistical Arbitrage Tools.

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