A practical guide to understanding, configuring, and using the OANDA Correlation Matrix for enhanced trading decisions and risk control.
Introducing the OANDA Correlation Matrix on MT4. A guide to its features and practical use
The OANDA Correlation Matrix is a tool available on MT4 that allows you to check the correlation between selected currency pairs.
Correlation values are displayed on a scale from -100 to +100.
The strength of each correlation is colour-coded within the matrix:
- Green: Little to no correlation (0 to ±25)
- Blue: Weak correlation (±25 to ±50)
- Orange: Moderate correlation (±50 to ±75)
- Red: Strong correlation (±75 to ±100)
Why correlation matters
When you hold positions in multiple currency pairs, taking the same directional position in strongly correlated pairs may significantly increase your risk if the market moves against you.
Therefore, trading in currency pairs with weaker correlations can help achieve a more effective spread of risk.
Moreover, if you focus only on strongly correlated pairs for trend-following strategies, trends may occur simultaneously, limiting your trading opportunities.
Monitoring multiple currency pairs with weak correlations can reveal trends emerging at different times, thus increasing the number of trading opportunities.
Setting up the OANDA Correlation Matrix
First things first
Before using the tool, you need to hide instruments with the suffix “.oj3m” in the MT4 Market Watch window.
To do this, right-click within the Market Watch window and select “Symbols” from the menu. In the “Symbols List” window, click on the left side of the instruments under “Forex-oj3m” to turn them grey (as shown above).
Parameters
The OANDA Correlation Matrix is an EA-type indicator.
In the settings window, ensure that “Allow live trading” and “Allow DLL imports” are both checked, then click “OK”.
Other parameters can be adjusted within the Correlation Matrix itself.
Selecting currency pairs to compare
To select currency pairs for comparison, click the “...” button at the top of the Correlation Matrix.
A new window will appear where you can choose the currency pairs you wish to display.
To hide a pair, uncheck the box to the left of the currency pair.
Selecting the time frame for correlation calculation
You can select different periods to monitor the correlation between currencies.
The Correlation Matrix allows you to analyse short-, medium-, and long-term correlations.
Choose the chart time frame and number of candlesticks at the top of the matrix.
The correlation for the selected period will then be displayed.
Highlighting correlation strength
The Correlation Matrix allows you to highlight correlation levels depending on their strength.
From the dropdown box labelled “No highlight” at the top of the matrix, you can choose “Strong”, “Moderate”, “Weak”, “None”, “Strong/Moderate”, or “Weak/None”.
Once selected, only the chosen correlation strength will be highlighted in the matrix.
This example highlights the currency pairs with a “Strong” correlation strength.
Average correlation between multiple currency pairs
The Correlation Matrix can also calculate the average correlation between the selected currency pairs.
When trading multiple pairs, checking average correlations and avoiding overly correlated combinations can help mitigate risk.
Click the “Combination” button at the top of the matrix to view the average correlation between the displayed currency pairs.
By selecting two or more currency pairs, the matrix will display their average correlation.
If the average correlation is high, a warning icon will appear, as shown in the image above.
