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Least Correlated Forex Currency Pairs

Minimizing risk trough Un-correlation

The number of possible major/minor currency is large and trading currencies that are correlated logically increases risk. My Google search for least correlated Forex pairs came up empty so I decided to run the analysis myself.

Using information from this list on Oanda I created a JS script that would loop through the table entires and return the least correlated pairs based on the 1 year value.

Major Currencies

Max correlation between -0.50 and 0.50.

["AUD/JPY", "AUD/USD", "EUR/AUD"]

Major + Minor Currencies

Max correlation between -0.60 and 0.60, with preference to try to keep major currencies in final set

["AUD/CAD", "AUD/CHF", "AUD/HKD", "AUD/JPY", "EUR/GBP", "EUR/SEK", "NZD/CAD", "SGD/CHF", "USD/SAR"]

You may want to run the below snippet and adjust aPAIRS_TO_TRY_FIRST and nMAX_ABSOLUTE_CORRELATION with your own needs. Feel free to comment or follow me @danielsokolows.

Console JS Snippet

document.querySelector('#Table_button').click(); // swithc to table mode which shows numbers
//var aPAIRS_TO_TRY_FIRST = []; // use this to specify which pairs should be compared first and so this should leave them in final set, HOWEVER later pairs can be stilled pruned by previous pairs specified here
// var aPAIRS_TO_TRY_FIRST = ["AUD/JPY", "AUD/USD", "EUR/AUD", "EUR/CHF", "EUR/GBP", "EUR/JPY", "EUR/USD", "GBP/CHF", "GBP/JPY", "GBP/USD", "NZD/USD", "USD/CAD", "USD/CHF", "USD/JPY"]; // major pairs, useful when running this with  
var aPAIRS_TO_TRY_FIRST = ["USD/CAD", "EUR/CAD", "GBP/CAD", "AUD/CAD", "NZD/CAD", "CAD/JPY", "CAD/CHF"]; 
var nMAX_ABSOLUTE_CORRELATION = 0.60;

// program variables
var aPairElementList = Array.prototype.slice.call(document.querySelector('#Table').querySelectorAll('.currency_pair'),0);
var aReturnedPairs = aPairElementList.map(function(oElement) {return oElement.innerText}); // whatever remains in this array is our uncorrelated pairs
var aPairsCompared = [];

// order our clicking pattern based on our pairs to try first
aPAIRS_TO_TRY_FIRST.reverse();
function fReorderInPlacePairElementList (aPairElementList) {
    for (var i = 0; i < aPAIRS_TO_TRY_FIRST.length; i++) {
        for (var j = 0; j < aPairElementList.length; j++) {
            if (aPAIRS_TO_TRY_FIRST[i] == aPairElementList[j].innerText) {
                 var oRemoved = aPairElementList.splice(j,1)[0];
                 aPairElementList.unshift(oRemoved);
            }
        }
    }
    return aPairElementList;
}
fReorderInPlacePairElementList(aPairElementList);


// for each pair select it
for (var i = 0; i < aPairElementList.length; i++) {
    aPairElementList[i].querySelector('button').click();
    // NEED TO RESCAN THE aPairElementList as the nodes have been destroyed and re-created so our aPairElementList is outdated
    aPairElementList = Array.prototype.slice.call(document.querySelector('#Table').querySelectorAll('.currency_pair'),0);
    fReorderInPlacePairElementList(aPairElementList); // and so we also need to re-order here
    
    // now loop over the entire list and prune any correlated pairs from our aReturnedPairs
    for (var j = 0; j < aPairElementList.length; j++) {
        // go to the nth sibling and check for corelation, and remove from our returned list if correlated
        // 7th  next sibling is 1 Year
        if (aPairElementList[i].innerText != aPairElementList[j].innerText && aPairsCompared.indexOf(aPairElementList[i].innerText + aPairElementList[j].innerText) == -1) {
            var nCorelationValue = Number(aPairElementList[j].nextElementSibling.nextElementSibling.nextElementSibling.nextElementSibling.nextElementSibling.nextElementSibling.nextElementSibling.innerText);
            //console.assert(nCorelationValue != NaN, 'Must never have failed to parse correlation');
            if (nCorelationValue == NaN) {throw new Exception('Must never have failed to parse correlation')};
            if (Math.abs(nCorelationValue) > nMAX_ABSOLUTE_CORRELATION ) {
               if (aPAIRS_TO_TRY_FIRST.indexOf(aPairElementList[j].innerText) > -1) {
                console.warn('Warning `' + aPairElementList[j].innerText + '` is in `aPAIRS_TO_TRY_FIRST` but will be removed due to correlation with `' + aPairElementList[i].innerText + '` which is also in `aPAIRS_TO_TRY_FIRST`.');
               }
               console.info('Removing `' + aPairElementList[j].innerText + '` because of correlation with `' + aPairElementList[i].innerText + '` of ' + nCorelationValue);
               if (aReturnedPairs.indexOf(aPairElementList[j].innerText) > -1) {
                aReturnedPairs.splice(aReturnedPairs.indexOf(aPairElementList[j].innerText), 1);
               }
               // store the reverse of the pair so we don't don't compare it and remove it
               aPairsCompared.push(aPairElementList[j].innerText + aPairElementList[i].innerText);
            }
        }
    }
}
console.log(aReturnedPairs)

Comments

  1. thanks for the post

    ReplyDelete
  2. Let me explain the basic principle how most Forex systems work. They are tuned up to work in a specific market condition. They often make money in a trending market, but loose money in a choppy market. It is not a problem as long as the market is trending and the system is making more money than it loses. Such a system can be profitable for several months and you would be happy with it. BUT...
    PREPARE FOR THE WORST...
    Market change over time. A well designed system starts with trend analysis to stay away from potentially losing trades. There are two problems of how a Forex system recognizes the trend.
    PROBLEM: FALSE "STRONG TREND" INDICATION.
    The system responds only to immediate price action. An explosive price movement that is usually the result of news release is tempting people to jump in and make a profit. It looks like a "strong trend", but what usually happens next is a hard fall.
    To avoid falling into this trap, check for the SOLUTION to find a REAL trend:
    ==> http://www.forextrendy.com?nsjjd92834
    SECOND PROBLEM: TREND RELIABILITY
    Most systems use various indicators to determine the trend. Actually, there is nothing bad about using indicators. One Simply Moving Average can do the job. The problem comes with the question: "Is the market trending NOW?" Whether the market is trending or not trending is not like black and white. The correct question is: "How well the market is trending?"
    And here we have something called TREND RELIABILITY.
    Trends exist and they can be traded up and down for a profit. You have to focus only on the most reliable market trends. "Forex Trendy" is a software solution to find the BEST trending currency pairs, time frames and compute the trend reliability for each Forex chart:
    ==> http://www.forextrendy.com?nsjjd92834

    ReplyDelete

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