Forex Correlations in trading

Correlation with other financial products is the most interesting factor in financial market. It is a must for each and every trader to understand the correlation factor for better performance in trading business.
How to find Correlations
If the 2 financial markets are moving in same time then we can say that correlation is exists in between them. There are two types such as positive and negative correlation. If the two financial markets are making positive correlation then they both move up and down in the same direction. If they move in the different directions such as one is in up and other is in down direction then we can say that they are in negative correlation.
There are many reasons by which correlation can happen which are mentioned below:
1. Sentiment – Sentimental correlation can result from preconceived notions on certain currency and any financial product. As an example we can say that USD and gold are having strong correlation.
2. Institutional Correlation – there are few correlations which can occur from the economic institutions. But big banks are not comes in this category. It is about economic systems of some structures. As an example we can say that USD and the oil are sharing negative correlation. The reason for this is that the companies or institutions that are in need of oil are making trade with the help of USD.
3. Risk – it is very much important to consider risk factor in financial market. If the investor is confident then they will purchase two financial products which are correlated by taking risk. Like that is the trader is not confident then they will not take high risk. In Bond market the risk factor is very much important like that of currency markets.