Minimum Spanning Trees and G10FX implied volatilities…

I have always been keen on clustering methods as they are a practical way to visualise meaningful relationships that may exist in the somehow chaotic financial markets…..Following my previous post on the subject I decided to extend this to FX Implied volatilies…

The following charts show how major 1-month FX volatilities have been trading over the last 20-years and for 2016.

plot of chunk charts

The folowing charts shows the correlations of daily changes since 1996 and for 2016.

plot of chunk correlation

The below plot the minimum spanning tree for G10FX implied vols. The distance between the nodes being a function of the above correlations. Some groupings are quite intuitive…some other less so…I would say the recent period seems to be at odd with the period 2010-2015 where we had two specific group: one for European currencies the other for commodity currencies….

plot of chunk mst

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