you should hedge the pairs based on correlation not on volatility,
to hedge non correlated pairs just based on volatility make no sense
as we all know one of the highest, if not the highest correlation in FX
is found in EUR USD and USD CHF (negative 97% correlation).
Is there a way to measure the deviation between the 2 pairs, maybe an indicator.
So let`s say I enter one unit short in EUR / USD and at the exact same time
one unit short in USD CHF
I would be more ore less market neutral ( at least if it was a perfect hedge).
But since the correlation is not perfect and deviates from time to time
I need to measure how much max drawdown this 2 positions could create.
I would really appreciate your help.
you and everyone has been missinformed,
we all know that is what people are saying but it's not true.
maybe it's something from the past,
and then they forgot to check???
well things change, and now
EURUSD and USDCHF are actually positivly correlated, YES!
just have a look at the charts, they are following eachother nice and closely,
they allways do!
if they where negativly correlated they would move the oposite ways to eachother.
maybe they used to be but not any more. it's a myth,
the most negativly correlated pairs which you could trade are EURUSD/USDDKK
like a perfect mirror, it can't get any more negativly correlated than that.
for correlations check out Forex Correlation - Mataf.net => ForexTicket
there are plenty of indicators, just Google it, hard to miss
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