Diversifying Through Currency ETFs

The Euro sank during these last two months. The question is what is the relationship among all currencies?

These are the correlations among all currency ETFs for the period April and May 2010:



For good diversication we need to look at uncorrelated ETFs. These are among the best pairs:

• UUP/UDN and ICI (a carry trade ETF)
• ICI and FXS (Swedish Krona), FXE, EU, EO (all Euro-based)

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