maandag 27 augustus 2012

Correlation: Australian Dollar Vs. Iron Ore

Another correlation to add to our list:

Positive correlation between AUD/USD Vs. Iron Ore price.

=> http://brazilianbubble.com/chart-the-correlation-between-iron-ore-price-and-the-australian-dollar/

Very important correlation to trade on. If you see a disparity like this:


You can bet that either iron ore prices will go up, or the Australian dollar will go down. So you can just put your money in both bets, you always win.

Reasoning? If you bet the iron ore price goes up and you bet the Australian dollar goes down you will at least get it right for one of the two. It can't be that the gap widens in the correlation, the gap always narrows to the equilibrium point. If iron ore prices do go down, you will at least make money on the Australian dollar plunging.

I call this the power of trading on correlation disparity.

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