Nathaniel K_ Morris#52

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What is position correlation in multi-pair trading?

Position correlation measures the relationship between different forex pairs in a trader’s portfolio. For example, EUR/USD and GBP/USD are positively correlated because both involve the US dollar. Holding positions in correlated pairs increases risk exposure, as losses can multiply if the dollar strengthens. Negative correlations, such as USD/JPY and gold, can provide diversification. Traders use correlation matrices to manage portfolio risk and avoid overexposure to one currency. Adjusting position size or hedging across pairs helps maintain balanced risk. Correlation management is crucial for multi-pair trading strategies.