New Correlation Charts

Here is how to read these charts which measure correlations and potentially profitable hedged carry trades. Daily periodic returns are the percent change (natural log) of the currency as per daily New York close.

The first chart measures the correlation between the DPR of 23 tradable currencies on FXCM. The bottom chart measures the correlation in the prices of the currencies. If the price is rising, a strong positive correlation will mean the other currency's price will rise as well. The middle chart displays how much interest will be earned if a trader takes positions in each of the corresponding currencies. If the correlations and interest rate swaps are positive, you can buy on pair and sell the other. Price appreciation (depreciation) will average zero and you are free to earn interest at FX leverage rates.

Currently, I am long AUD/USD and short EUR/USD. The AUD/JPY and CHF/JPY pair looks attractive right now and I may be adding that soon.