Tier 5 · Professional · Module 5.3
Correlation across your market and adjacent markets
Use intermarket relationships — yields and currencies, the dollar and gold, oil and commodity currencies, equities and risk-sensitive FX — to confirm or question moves in your own market.
Lesson 1 of 2 · 5 min read
No market trades in isolation. Currencies respond to bond yields, gold responds to the dollar, commodity currencies respond to oil and metals, and almost everything responds to shifts in risk appetite. Professional traders watch a handful of adjacent markets to confirm what they see in their own — and to notice early when a move isn't supported. This is intermarket analysis.
What you'll learn
- The major intermarket relationships and why they exist
- Risk-on vs risk-off, and how it shows up across assets
- Using adjacent markets for confirmation and divergence
- How relationships shift between regimes
- Building a small intermarket watchlist for your own market
1. Key relationships
(These are common tendencies; they strengthen, weaken, and occasionally reverse.)
| Relationship | Why it exists |
|---|---|
| US yields ↑ → USD ↑ (especially USD/JPY) | Higher yields attract capital into dollar assets (see Interest rates and central banks) |
| USD ↑ → gold ↓ | Gold is priced in dollars; real yields often rise with the dollar (see Gold, the US dollar, and real yields) |
| Oil ↑ → CAD ↑ (USD/CAD ↓) | Canada is a major oil exporter |
| Metals and China growth ↑ → AUD ↑ | Australia's exports are commodity-heavy |
| Equities ↑ → AUD/JPY ↑ | AUD tends to benefit from risk appetite; JPY is often a safe haven |
| Equities ↓ → volatility index (VIX) ↑ | Rising fear increases demand for protection |
| Tech-heavy indices vs rates | Higher yields often pressure high-valuation growth stocks (see Valuation basics) |
2. Risk-on vs risk-off
Many markets move together according to risk appetite:
| Risk-on (confidence) | Risk-off (fear) | |
|---|---|---|
| Stock indices | Up | Down |
| Commodity currencies (AUD, NZD, CAD) | Up | Down |
| Safe havens (JPY, CHF, often USD) | Down | Up |
| Gold | Mixed | Often up (after any dash-for-cash phase) |
| Crypto | Often up | Often down |
| Volatility (VIX) | Low / falling | High / rising |
A quick look at a few of these tells you the market's mood before you look at your own chart.
3. Confirmation and divergence
Confirmation
A move in your market that is supported by its adjacent markets is more likely to be sustained.
(Illustrative.) EUR/USD breaks above resistance. At the same time, the gap between German and US 2-year yields is moving in the euro's favour, and the US dollar index is falling broadly. The breakout has macro support.
Divergence
A move not supported by its usual drivers deserves caution.
Worked example
(Illustrative.) Gold rallies $40 in a session. But:
- US real yields are rising
- The dollar index is strengthening
- There's no obvious risk-off event
Gold is moving against both of its usual drivers. Possible explanations: a large buyer (such as central-bank demand), short covering, or a headline you haven't seen. A trader might reduce size on new longs, or wait for the move to hold before trusting it — and investigate what's driving it (see When the textbook breaks in the gold lesson).
4. Relationships change with regimes
Correlations are not constants:
- The stock–bond relationship has changed over the decades: in some periods bonds rallied when stocks fell (a useful hedge); in periods of high inflation, both have fallen together.
- Crypto's correlation with equities has risen and fallen over time.
- In crises, many correlations jump towards one (see Portfolio-level risk).
Recheck the relationships you rely on every month or two, over a recent window.
5. Your intermarket watchlist
Pick 3–5 adjacent markets for your main market:
| If you trade… | Watch |
|---|---|
| EUR/USD | US–German 2-year yield spread, dollar index, S&P 500 |
| USD/JPY | US 10-year yield, Nikkei, risk sentiment |
| XAU/USD | US real yields (10-year TIPS), dollar index, VIX |
| USD/CAD | WTI crude oil, US–Canada rate expectations |
| S&P 500 / Nasdaq | US 10-year yield, VIX, dollar index, mega-cap earnings dates |
| BTC | Nasdaq 100, dollar index, stablecoin flows (see On-chain data) |
Check them at the start of each session as part of your routine.
Common beginner mistakes
- Treating correlations as fixed laws.
- Ignoring clear divergences — or trading them as signals on their own.
- Watching too many markets and drowning in information.
- Forgetting that risk-off can move many positions against you at once.
- Using outdated correlation figures.
Key terms
| Term | Meaning |
|---|---|
| Intermarket analysis | Using related markets to understand your own |
| Adjacent market | A market that often influences or reflects yours |
| Risk-on / risk-off | Market-wide appetite for, or retreat from, risk |
| Confirmation | Adjacent markets supporting a move |
| Divergence | A move not supported by its usual drivers |
| Regime | A period in which particular relationships hold |
Practice
- Choose your 3–5 adjacent markets from the table (or build your own).
- Chart your market against each over the last six months. Which relationships held? Which broke?
- Find one recent divergence and research what explained it.
- Add the watchlist check to your pre-session routine.
Quick recap
- Markets are linked through rates, the dollar, commodities, and risk appetite.
- Risk-on / risk-off moves many assets together.
- Use adjacent markets for confirmation — and treat divergences as questions.
- Relationships change with regimes — recheck them regularly.
- Keep a small, focused intermarket watchlist.
Educational content only — not financial advice. Trading involves substantial risk of loss. Practise on a demo account before risking real money.
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