A Currency Correlation You Can Count On
Looking for a little predictability in currency land? Check out these correlations.
It sure seems sometimes like the traditional safe-haven currencies have minds of their own. The dollar has had the blues, while the Swiss franc has been a stellar performer and the yen has been hurt by Mother Nature and more.
If you look at actual weekly prices of dollar-Swiss franc and yen-Swiss franc, however, they track each other surprisingly closely, according to this excellent analysis. To be precise, there's a 93% correlation between the pairs, "which is to say that the two are almost perfectly correlated," the analysis says.
Take a look:
What can you do with this?
The most obvious move is to diversify using these currency pairs. For example, if you think investors' risk appetite will shrink, you could sell both the dollar-yen cross and the dollar-Swiss. That way if something goes really wrong in either Switzerland or Japan, you have some protection.
No doubt you can find other trades too. Happy hunting.
Tune In: CNBC's "Money in Motion Currency Trading" airs on Fridays at 5:30pm.
"Money in Motion Currency Trading" repeats on Saturdays at 7pm.