Correlation of currency ETFs: the best currencies fior diversification

Correlation is fundamental for diversification of investments. For investors wishing to diversify away from the US dollar, or from other currencies, here is the correlation of all currency ETfs for the period January 2 to February 27 2010.

(please click to enlarge)

The best pairs of stocks for diversification are the ones that show very small correlation values. The ones with high correlations are indicated in green and red. Those are the ones to avoid. The most uncorrelated pairs are indicated in bold type face.

The perfect pairs are URR and CNY (long Euro and Chinese Yuan), and FXA and CNY (Aussie dollar and Yuan), with a value of 0.0, but there are several other pairs very close. Please see chart above.