Yesterday’s Wall Street Journal reported foreign-exchange currency trading volume at over US $4.0 billion per day. [See “Currency Trading Soars“] While the ETF currency tracking indices have neither as much volume nor narrow spreads, they do make for convenient means of testing various currency pairs performance.
Before running my ETF Rewind tests, I hypothesized that the trending characteristics of currencies would make this a difficult enterprise. However, after a little perseverance and over 100 combinations later, it turns out that with sufficient volatility, currencies moving in tandem still present a solid opportunity….
Is it a surprise that the fast moving Japanese Yen (FXY) has recently presented one of the better matches? The chart above highlights the pairings with the best return/equity curve linearity combination over the last six months, including, among others, FXY : BZF/ BNZ & CEW, all characterized by back-tested returns exceeding twenty percent and returns linearity approaching 90%.
Related posts:
