In trading, Correlation is a measurement of the relationship between two assets. A positive correlation suggests that Asset B will move in the same direction as Asset A. For example, the EUR/JPY and German stock market (DAX) moved in the same direction from 2004 to 2010. In other words, EUR/JPY grew when the DAX did well and fell when the stock market dropped.A negative correlation means that when one asset moves up or down, another moves in the opposite direction; for instance, USD/CHF had a negative correlation with S&P 500 from 2008 to 2009 because USD appreciated as stocks crashed.The strength of a correlation coefficient ranges from -1 (perfect inverse relationship) through 0 (no linear relationship) to +1 (perfect positive linear relationship). The closer this number is to either -1 or +1, the stronger the trend between those two assets.Knowing how stocks and currencies move relative to each other can be extremely helpful while trading Forex pairs . For example , if you notice that there’s been a strong positive correlation between gold prices and GBPUSD exchange rates over recent weeks , it might suggest that buying gold may be a good way of hedging your bets against any potential losses on your British pound investments . Conversely , if you see evidence of a strong negative correlation developing between these two markets , then selling gold may be an effective strategy for minimizing any potential losses on your pounds.