Forex Correlation Calculator
FOREX · PAIR CORRELATION · LIVE HISTORICAL RATES
Correlation coefficient and minimum-variance hedge ratio between any two currency pairs, computed from live historical daily rates.
What correlation and hedge ratio mean
Correlation measures how closely two currency pairs move together, from −1 (perfectly opposite) through 0 (unrelated) to +1 (perfectly together), computed from their daily % returns, not raw price levels: two pairs that are simply both trending, unrelated to each other, would show spuriously high "correlation" if you compared price levels directly. Hedge ratio tells you how many units of the second pair offset the price risk of one unit of the first, the standard minimum-variance formula used for futures hedging, applied here to two FX pairs.
The formula
- Correlation = cov(returns1, returns2) / (stdDev(returns1) × stdDev(returns2))
- Hedge ratio = cov(returns1, returns2) / var(returns2)
Reading the result
EUR/USD and GBP/USD typically show strong positive correlation (both quote against USD, and the euro and pound often move together against the dollar): a hedge ratio near 1 means roughly equal-sized opposite positions offset each other. A pair like USD/CHF often shows strong negative correlation with EUR/USD, since the franc tends to strengthen against the dollar in similar conditions to the euro: a negative hedge ratio there means same-direction positions are the natural hedge, not opposite ones.
Where to go next
Once you know your hedge ratio, size the hedging leg with the Position Size Calculator, or check the risk/reward on the combined position.
Use via API or MCP
This calculation is available as a deterministic API call for bots and AI agents.
Why compute correlation on returns instead of raw prices?
Two pairs that are both simply trending upward, for unrelated reasons, would show a high correlation on raw price levels alone: a well-known statistical trap. Daily % returns measure whether the pairs actually move together day to day, which is what matters for hedging.
What lookback window should I use?
Shorter windows (30 days) react faster to a recent regime change; longer windows (180-365 days) smooth out noise and reflect a more stable long-run relationship. Correlation between currency pairs can shift meaningfully over months, so check more than one window before relying on it.
What does a hedge ratio of 0.75 actually mean?
For every 1 unit of exposure in your first pair, hold 0.75 units of the second pair (in the opposite direction if the hedge ratio is positive, the same direction if negative) to minimize the combined position's variance. It's a statistical minimum, not a guarantee: correlation can break down, especially during high-volatility events.
Why do I need at least 14 days of data?
Correlation and hedge ratio need enough data points to be mathematically meaningful. Fewer than 14 calendar days (roughly 10 trading days after weekends) is too small a sample to trust, so the calculator requires at least that much.