Math in finance or vice versa

Posts Tagged ‘correlation arbitrage

Correlation trading on FX

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Correlation trading is based on few simple ideas:

  1. Correlations are changing with time
  2. Correlations of pairs of 3 currencies are bounded by strict equation
  3. Correlation is bound in the interval [-1, 1]

Therefore, one may try to “buy correlation” at -1 and to “sell it” at +1.

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Written by fxpaul

November 1, 2011 at 13:04