• Registered: 2017-10-15
  • Posts: 2

Topic: Correlation Hedging Strategy EURUSD/USDCHF pair

Hi All,

This is my first post to this forum.
I'm currently trying FSB and EA Studio and very interested buying a license after the trial.

I have a question on creating Correlation Hedging EA Strategy in FSB. I'm not sure if it can be done.

The strategy is to buy 1 lot EURUSD and 1 lot USDCHF when the Correlation is above 90-95%. This correlation % changes over time and due to fluctuation in the market, both trade combination may be in Profit. So once the predefined profit target reaches then close both trade and make a profit. Until that point just hold it without much drawdown.

Can you explain if this strategy can be tested in FSB?
Thanks in advance.

Regards
Sudipta

  • Registered: 2017-03-14
  • Posts: 709

Re: Correlation Hedging Strategy EURUSD/USDCHF pair

I can not exactly answer your question -- but I am also interested in the inverse correlation between EURUSD and USDCHF.

It has been shown they have almost a perfect inversion correlation -- so, no need to keep checking.

So, one possible strategy would be to to sell USDCHF whenever your EURUSD strategy signaled a buy.  In other words, a buy EURUSD signal would actually initiate two trades -- buy EURUSD and sell USDCHF.  This is easily done with a minor modification in the *.mq4 source code.

But the problem here is you would be relying on a single signal (the one from your EURUSD strategy) and if it got the direction wrong then you'll lose twice.

What I would like to be able to do is to have two signals -- one from EURUSD and one from USDCHF.  And if one said "buy" and the other said "sell" then I would have confidence the signals were correct.

I don't think you can currently do this with FSB or EA Studio, as it would require two chart windows (EURUSD and USDCHF) that could communicate with one another.

However, it might be possible to create a custom indicator that could pass data between multiple chart windows.  In that way one could take advantage of this unique correlation between EURUSD and USDCHF.

  • Registered: 2017-10-15
  • Posts: 2

Re: Correlation Hedging Strategy EURUSD/USDCHF pair

sleytus,

Thanks for your reply. I was not asking to get a confirmation from a negatove or positively correlated currncy pairs. i was thinking about a strategy where you buy EURUSD and buy USDCHF and take profit at the market fluctuations (correlation < 90%).

OR

Another stragtegy would be buy EURUSD and BUY USDCHF at the same time like before when the correlation is worst (i.e, < 90%) and take profit when they come close to 95% which iventually it does.

It seems hedging allows more innovative strategy. But since I'm currently in US where hedging is not allowed, currency correlation is only option left.

Regards
Sudipta

  • Registered: 2017-03-14
  • Posts: 709

Re: Correlation Hedging Strategy EURUSD/USDCHF pair

Interesting...  I think I was more focused on their inverse correlation and missed your point.

So, to be clear, are you saying the strategy buys both EURUSD and USDCHF -- and since they are inversely correlated then 90% of the time you come out even.  But then, 10% of the time they are moving in the same direction, and that's when you win.  Is that sort of the idea?

If so, then I have two questions:
1. How do you know which direction to go initially -- i.e. buy or sell?
2. And how would one go about monitoring the correlation?  I mean -- would you use the last 10 bars, 100 bars 1000 bars to compute a correlation coefficient?

It would be very neat to have an indicator that constantly monitored the correlation between two currency pairs -- based on a setting of N bars that you could specify.  I think it is doable, but not something inherently supported by MT4.

You've piqued my curiousity -- I'm going to look into this further...