The Correlation calculator visually (using charts) represents the existence of an interconnection between movements in the price of different trading pairs and calculates a correlation coefficient. The correlation coefficient is an indicator that shows the degree of interconnectedness between chosen pairs. The correlation coefficient takes on values ranging between -1 and +1. The value of +1 (or any closest to it) indicates that prices of chosen pairs are moving in the same direction. The value of -1 (or any closest to it) indicates that prices of chosen pairs are moving in opposite directions. The following degrees of correlation are distinguished:
- - weak (0 to +/- 0.2);
- - low (from +/-0.2 to 0.4);
- - average (from +/-0.4 to 0.7);
- - high (from +/-0.7 to 0.9);
- - strongest (from +/-0.9 to 1).
The Correlation calculator is a useful analytical tool that helps to make a sound trading decision when using a strategy, which is based on diversification and hedging against risks.