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What is correlation analysis in forex trading?

Correlation measures how pairs move relative to each other. Positive correlation: EUR/USD and GBP/USD often rise together due to USD base. Negative correlation: USD/JPY vs. gold. Institutions monitor correlations to manage portfolio risk. Retail traders can use correlation matrices or tools from brokers. Benefits: avoiding redundant trades and spotting cross-hedges. Risks: correlations shift during crises—what worked yesterday may fail today. Correlation analysis turns forex into a multi-dimensional game, helping traders manage exposure intelligently.