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Series · 5 parts

Correlation explained: 5 questions for treasurers.

For treasurers and finance leaders with cash flows in several foreign currencies. The LinkedIn series accompanying the whitepaper “Correlation in Treasury Hedging”: five short articles on why the interplay of currencies decides your actual risk.

Stefan Hamberger
COO & Co-Founder, GLORIARMS

In short

The risk of a currency portfolio is not the sum of its individual risks, because currencies do not move independently. How far positions offset each other depends on correlation, and correlation changes, often precisely in stress phases. Seeing historical and implied correlation side by side every day shows early when your own assumptions stop holding.

  1. Part01 Why is your currency risk smaller than the sum of its parts?An example with three positions: EUR 15m added up one by one, EUR 7m as a portfolio. The difference is correlation. · 3 min read→
  2. Part02 What is left of diversification when correlations break down?Same portfolio as in part 1. Calm market: EUR 7.0m of risk. Stress phase: EUR 11.4m. Nothing about the positions changed. · 3 min read→
  3. Part03 Why does your cash flow at risk depend on the correlation matrix?The simulation is not the problem. The stale matrix is. · 3 min read→
  4. Part04 What is implied correlation, and what does it do for treasury?Your correlation matrix looks back. The market looks ahead. · 4 min read→
  5. Part05 What does the gap between implied and historical correlation tell you?The most interesting number in a correlation panel is the gap: between what happened and what the market is pricing now. · 3 min read→

Go deeper

Whitepaper · free to readCorrelation in Treasury HedgingThe full analysis: why risks do not simply add up, historical and implied correlation, stress example and methodology.Topic pageCorrelation-driven hedgingHow GLORIAnalytics aligns hedging with the correlation-adjusted portfolio risk.Topic pageCash Flow at RiskWhat CFaR measures and why correlation drives it.PlatformCorrelation PanelHistorical and implied correlation of your portfolio, side by side, recalculated every day.