I’m always looking to minimize daily risk exposure by diversifying my portfolio and in that vein I’ve been spending a good deal of time lately investigating various FX platforms and opportunities trading the Euro and Yen pairs. In the process, a number of correlation ideas have popped up and this is one that looks like it might have potential for both FX and equity traders.
Sometimes a search in one direction leads to something quite different than the expected results. In this case I was looking for FXE pair correlations with TBT (bonds inverse) but ended up with this study instead. The performance metrics are based on daily bars but transposing the pair algorithm to 65 minute bars shows considerable promise. This is a work in progress with a short term goal of trading the EUR/USD FX pair using the FXE/GDX signal line all on a 2 minute bar framework. An additional wrinkle to be ironed out is that most FX platforms do not offer a 2 minute bar increment… just 1, 5, and 10 minutes so the latency issue will have to be addressed before proceeding to deploy real money on this setup.
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