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Correlation trading: Opportunities and tactics

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The AUD/USD and the EUR/USD have been highly correlated for more than a decade, but "See ya later sucka" shows how that correlation broke down as Australia emerged from the global recession early; while the Eurozone debt issues intensified. Correlation data measuring the co-movements of these pairs had a peak of 72% correlated in October 2009, with correlations going lately below 55%. Constructing such an option would involve a bet that the AUD/USD would be below a price point and at the same time the EUR/USD would be above a certain price point by a certain date. This trade is not usually available through a retail platform but illustrates the scope of tools available to trade currency spreads.

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