As a trader, I'm consistently looking for ways to increase the amount of money I stand to make in the process of trading. One of the most effective ways I've found to do so is by trading assets that are known to have a heavy correlation. For example, Goldcorp and gold are heavily correlated assets that have the ability to improve on your profit potential. Today, we'll talk about what correlation means, what we've seen from gold and Goldcorp, and how to take advantage of the relationship between these assets.
What Correlation Means To Traders
The classic definition of correlation is “a mutual relationship or connection between two or more things.” In the world of binary options, there are two different types of correlations. Positive correlations are defined as two or more assets whose values tend to move in tandem with each other. This means that when one asset climbs in value, the other(s) follow. Adversely, when one asset falls in value, we'll see declines in the other asset(s). Assets that are negatively correlated will move against each other. Therefore, when the value of one asset rises, the value of negatively correlated assets will fall and vice versa.
Gold And Goldcorp Are Positively Correlated
Goldcorp is a Canadian company that is heavily focused on gold, as it's name would suggest. The company focuses on gold mining, exploration, extraction, processing and reclamation of the precious metal. As a result, Goldcorp is heavily dependent on the value of gold. Ultimately, when the value of the precious metal rises, the company has a higher ability to profit, leading to higher stock prices. Make sure to check our latest economic news.
What We Can Expect To See From Gold Moving Forward
Gold is a very interesting asset to follow at the moment. This is because the Federal Reserve has plans to increase the Federal Funds rate in December. Ultimately, this will cause gold to decline for two reasons…
USD To Rise In Value – When the Federal Reserve increases its interest rate, it will ultimately cause the USD to rise in value. As a result, the value of gold will decline as the commodity is priced using the USD. Therefore, those that want to get their hands on the precious metal outside of the United States will have to pay more for it. As a result, demand for the precious metal will decline, leading to declines in its value.
Higher Rates Create A New Safe Haven – One of the factors that gives gold its value is the fact that it is a safe haven. However, when the Federal Reserve increases its interest rate, it will increase gains realized from treasury bonds, which then become a new safe haven of their own. This will also reduce reliance on gold, leading to lower demand and lower prices.
How Binary Options Traders Can Take Advantage Of The Trends
Since gold is likely to decline, we know that binary options traders have the ability to gain from put options on the asset. On the other hand, it's also clear that binary options traders have the ability to gain from other assets. Specifically, assets that are correlated with gold, such as Goldcorp, the USD and others. So, get creative for the opportunity to take advantage of several assets following a single event!
[Image Courtesy of Financial Post]