# Calculate price variance caused by denominating currency

I would like to calculate asset correlations while excluding movements resulting from the denominating currency (as much as possible). My common sense tells me that any two assets with the same denominator are going to have higher correlation, then the underlying securities.

The dollar index, or forex quotes, would only represent foreign exchange

When "all" assets appreciate in value, this could in my view also simultaneously be a devaluation of the base curreny.

For now i just take a mean of log returns from a diverse set of asset classes, but that is an approximation at best.

What would be a good way to calculate this?

• Can you give a (real or made up) example of "two assets with the same denominator [having] a higher correlation, than the underlying securities". I don't quite follow what you are saying here. Thanks. – Alex C Sep 16 '17 at 22:41
• Lets take US stocks: they are traded in USD, if they move up together it can be a result from a USD devaluation. Thats what i want to exclude from my correlation calculations as best as possible. – user29630 Sep 16 '17 at 22:44
• Whether you measure the correlation between GM price and Ford price in Dollar terms or in Euro terms you get the same result. And as far as I know there is no way to measure correlation "without regard to any currency"; in Economics value is always measured relative to a currency (or basket of currencies). – Alex C Sep 17 '17 at 12:57
• "What is the ideal currency exposure for my portfolio" is an interesting (but separate) question. And the exposure from the assets you own can be modified by currency hedging. But every portfolio has to be in some currency(ies) you choose (what George Soros in one of his books called "the existential choice"). – Alex C Sep 17 '17 at 13:44