What is correlation trading?
correlation trading is a type of investment strategy that requires the investor to evaluate the performance of the security, identify a similar security that shows the promise of monitoring the same general trend, and takes steps to trade this security. The degree of similarity may vary, although the factors that affect the movement of each asset are often influenced by the same basic set of factors. An example of correlation trading may include considering gold movement on the market and then decide to buy silver because this investment is likely to trade in a similar way.
The general concept of correlation trading can be used with almost any type of investment. When trading in currency, this process will include the identification of two specific currencies that demonstrate the same formula and organize purchases and sale to use this formula. In a similar way it is possible to trade shares using correlation trading and often identify shares of tklobouk is not so well known and closes thoseThis shares before other investors begin to notice a similar movement. Even investment in bonds can be considered in pairs, allowing to find and block bond problems that cause revenues very similar to bonds issued entities that are generally known in the investment community.
One of the advantages of correlation trading is that it supports a certain degree of diversification within the investment portfolio. Because many forms of modern portfolio theory include at least some suggestions that portfolio diversification in any economy is a good idea, finding common origin, or correlation between two similar securities can be considered as a means of losing tenure in one particular portfolio segment. For exampleII with profits obtained with others.
Because correlation trading requires identification of two shares that show similar business formulas, investors using this approach must understand trends in the sectors and market trends. This makes it easier to qualify for the opportunity as a similar investment used as the standard for comparison, and to see if the degree or similarity is sufficient to support the idea that the asset will work in parallel. If there is no strong similarity between the two investments, the business strategy is a very small chance of achieving the desired results.