Correlation: why three currency trades may be one big idea
Opening several positions can feel diversified even when they all rely on the same currency moving in the same direction. Counting tickets is not the same as understanding the combined exposure.
Translate each position into words
Write down which currency you are effectively long and which you are short. Two different pairs can both contain substantial exposure to the US dollar. The exact relationship depends on position direction and size, so inspect each leg.
Avoid treating correlation as permanent
Historical relationships can change during policy surprises, liquidity stress or country-specific events. A spreadsheet correlation coefficient summarizes a selected sample. Change the time interval or sample period and the result may change too.
Review the portfolio scenario
For a paper account, imagine a sharp move in one shared currency and calculate the combined effect. Include losses that could occur together instead of assigning an independent allowance to each ticket. This exercise can reveal concentration that a list of different pair names hides. It is a planning tool with simplified assumptions, not a promise that every future relationship can be modeled in advance.
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