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 volatilities…The following charts show how major 1-month FX volatilities have been trading over the last 5-years and for 2015.
The folowing charts shows the correlations of daily changes since 2010 and for 2015.
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….
If you want a natter about this or just to exchange some ideas on the subject or other concepts presented in my blog, contact me at email@example.com…