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MartinGale7
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Posts: 70
Joined: April 1st, 2011, 7:42 am

Un-Pairing Currency Pairs?

November 27th, 2017, 11:02 pm

Let's say I have price history for a set of currency pairs { AUD/CAD, EUR/USD, NOK/SEK, NZD/USD, ... } . I seek to introduce a new currency XXX priced as a linear combination of these pairs such that new pairs { AUD/XXX, CAD/XXX, EUR/XXX, ... } have minimum volatility.

In other words, I am trying to 'separate' currencies out of their pairs in a most likely fashion.

Any thoughts on how to do this?