Thoughts on some of the absurdity of multi-currency analysis. - page 2
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There is exactly the same amount of information in 20 crosses and 8 majors as there is in 8 majors.
Cluster approach:
Quantity of currency:
I will add
Correlation makes sense in the stock market, where shares of one industry are tied to common fundamentals of one economy or shares of one country are tied to that country's economy or for example the same currency risk that is common to the whole country.
As far as currencies are concerned, they are a reflection of different economies. They are not even shares of different industries, they are completely different economies with different heads of state located in different territories.
If you want to diversify your country risk, you can't find anything better than currencies.
Currencies are the least correlated of all that is possible in the economy, because they depend on totally unrelated political, economic and social factors.
Correlation currency pairs occur when the currency of two different countries is expressed through the currency of one country, and for currency pairs it does look like correlation.
It is a "chicken and egg" issue:
CBRF bi-currency basket == 0.45 * RUB/EUR + 0.55 * RUB/USD == RUB/USD * (0.55 + 0.45 / EUR/USD)
Totally, the CBRF Bicurrency Basket = RUB/USD * (0.55 + 0.45 / EUR/USD).
In other words, knowing the value of the bi-currency basket, you can always calculate the value of RUB/USD. And vice versa: knowing the rate of RUB/USD, you can always calculate the value of the dual-currency basket.
If the bank is focused on the dual-currency basket when analysing the RUB/USD exchange rate, it is focused on the RUB/USD rate itself.
The CBRF's bi-currency basket as a special case of a currency index makes no sense as any currency index.
"If the bank analyses the RUB/USD exchange rate by looking at the bi-currency basket, it is looking at the RUB/USD exchange rate.
You have proved it is not so: it is oriented on RUB/USD and EUR/USD, according to the formula: CBRF Bi-currency basket = RUB/USD * (0.55 + 0.45 / EUR/USD).
Anyway, there are 3 currencies (RUB, EUR, USD) and not 2. Of course they can be expressed inside each other and the formula will change, but the 3 currencies will remain
The EUR/USD exchange rate is in no way dependent on the rouble. I think you know what I mean.
Mathemat писал(а) >>
We don't trade currencies, we trade pairs. Which pair should we open?
I suppose that is probably where the biggest tragedy lies, because THEY are trading currencies... unlike most of us :)
Вполне вероятно предположить, что как раз в этом и кроется самая большая трагедия, ибо ОНИ-то как раз торгуют валютами.. в отличии от большинства нас :)
Tragedy can be found in anything - if you want it ;)
Трагедию мона найти в чём угодно - было б желание ;)
It's understandable, but that's not what it's about :)
I would emphasise the distinction between the principles of convertibility of currencies and the cause-effect relationships by which they affect each other. And while convertibility is almost instantaneous, the impact is inertial and subject to fluctuations. The hegemony of USD only means a way of convertibility, and as far as factors are concerned, any currency can initiate a wave. At that moment it is convenient to consider it as a "base" to form temporary "major" rates and observe the movement of that cluster.
Я б подчеркнул различие между принципами конвертируемости валют и причинно-следственных связей, за счет которых они влияют друг на друга. Причем, если конвертируемость почти моментальная, то воздействие - инерционно и подвержено колебаниям. Гегемония USD означает лишь способ конвертации, а по части факторов - любая валюта может выступить инициатором волны. Её в этот момент удобно рассматривать "базовой" для формирования временных "мажорных" курсов и наблюдать за движением этого кластера.
Yes, I agree with you. It seems to me that if you "designate" a world currency other than the quid, but another ( within reasonable limits. ;) something like the efro or the pound), you could write the same thing as getch, with the same result for emotion. The article simply puts a point on the arbitrage topic, but in no way touches on the logic of the portfolio game.
Да, я с вами согласен. Мне кажется, если "назначить" мировой валютой не бакс, а другую ( в разумных пределах. ;) что-нибудь типа ефро или фунта), то можно будет написать то же самое что и getch, с тем же результатом для эмоций. Статья просто ставит точку на арбитражной теме, но никак не затрагивает логику портфельной игры.
Short-term arbitrage on currencies is a reality. And there is nothing contradictory about that.
You cannot replace the USD with another currency with the same reasoning. There has to be a world currency. At the moment the USD is this currency.
What I have written concerns directly the sense of creating a portfolio of currency pairs. Such a portfolio makes no sense, because a portfolio of currency pairs does not diversify risks, or rather it does not reduce them.
That is, the probability that one pair will "pull out" another is equal to the probability that it will aggravate even more.