“Correlation Coefficient” indicator of TradingView


Correlation is the relationship between two values. When one changes, the other also changes. Correlation consists of “Positive correlation” and “Negative correlation”. A positive correlation is one in which one increases and the other also increases, and a negative correlation is one in which one increases and the other decreases.

The “Correlation Coefficient” is a statistical index showing the degree of correlation. The correlation coefficient takes a value between −1 and 1. The closer it is to 1, the stronger the positive correlation, and the closer it is to −1, the stronger the negative correlation.

In forex trading, there are correlations between various trade targets. TradingView has a function to display the correlation coefficient. By using this function, you can analyze the correlation of the trading targets and utilize it for trading.

“CORREL function” of Excel

Before going to TradingView, I will introduce the “CORREL function” that calculates the correlation coefficient in MS Excel.
The arguments of the CORREL function are “=CORREL(array 1, array 2)”.

The sample below is a table of closing prices for the S&P500 and AUDUSD for the last 20 days.
(In cell B23, enter “=CORREL(B2:B21,C2:C21)”.)

As a result, the correlation coefficient between the S&P500 and AUDUSD has been calculated as “0.8485361” for the last 20 days.

“Correlation Coefficient” indicator of TradingView

Next, I will introduce the function of displaying the correlation coefficient by TradingView. Open the indicator menu and enter “Correlation” to select the “Correlation Coefficient” indicator below.

For example, with the S&P500 Index chart, enter the target item and period (in this example, target is closing price of AUD/USD and the target period is 20).

As a result, the correlation coefficient is displayed in the indicator window in the chart below.

“Correlation Coefficient” indicator of TradingView

It is clear that US stock market and AUDUSD often have a high correlation (positive correlation), and that the correlation has been high since the COVID-19 pandemic shock.

This time, I explained that correlation analysis is troublesome in Excel, but it can be easily done in TradingView.
From next time, I would like to see various correlations for many trade targets concretely.