Currency correlations show us how and to what extent pair’s prices evolve simultaneously - if their prices move in the same direction/in opposite directions or completely independent at the same time and, if there is a connection of their evolution, how strong is it.

Currency correlations are expressed on scale from -1 to 1.

• - 1 is a perfect negative correlation, suggesting a strong relation of inverse proportionality between two pairs’ quotations - when one goes up the other goes down, and vice versa.
• 1 is a perfect positive correlation, suggesting a strong relation of direct proportionality between two pairs’ quotations - they move in the same way.
• 0 suggests the absence of any correlation, a complete lack of connection between their evolutions.

Even if there is a strong correlation between pairs this doesn’t mean that their price will rise or fall at the same time for the same amount of pips.
For example, between pair X and pair Y is a strong negative correlation. If pair X increases by 100 pips it does not mean pair Y will necessarily decrease by 100 pips, too.

These correlations always vary. Two parities that are poorly correlated on short term may in fact be strongly correlated in the long run.

If you prefer to trade multiple pairs at the same time, ignoring the correlations between them can put you in the position to assume a double risk without even knowing or wanting it.
Let's take an example of two pairs which have a strong positive correlation - EUR/USD and GBP/USD.
Let’s assume you want to place two Buy orders on these pairs. If the price falls than, you’ll lose on both trades because these pairs will go down in the same time. In this case, you risked double.
Of course, the price may go up as well and you’ll win on both trades but you’ll risk too much.

Also, you may Buy one pair and Sell the other. Both pairs will go in the same direction and apparently, one’s gain will compensate for the other’s loss. Let us remind you that the profit and the loss won’t be necessarily equal, because more often the move’s ranges on each pair won’t be equal.

What would happen, if we Sell EUR/USD and Buy GBP/USD and the price drops?
The decrease would probably be stronger on GBP/USD.
In this case, we’ll lose more than our profit on EUR/USD – our winning pair.
Obviously, things may happen the other way, but the risk is too big.

The situation is similar for negative correlations, too.

If we Buy/Sell on both pairs, one trade will bring us profit and the other will be a losing one.
If we Buy one pair and Sell the other, we may have a win-win or a loss-loss scenario.

Knowing these correlations allows us to protect ourselves against counter-productive trading – simultaneous trading of highly correlated pairs, which, under the appearance of multiple investments and winning chances, conceal a substantial risk.

Secondly, we can focus on those pairs that increase our winning chances. 
Example
USD gives signs of appreciation against EUR.
Instead of initiating a Sell on EUR/USD, we may place two lower volume Sell orders both on EUR/USD and GBP/USD (are strongly correlated). If price goes down, both pairs’ price will go down. The decrease will most likely be felt more strongly on GBP/USD. This will increase our winning chances.

Another goal is to identify the fake breakouts. In this respect we may predict the future price evolution on a certain pair, we could study the pairs which are strongly correlated with it (either a positive or a negative correlation).
Example
Suppose EUR/USD is close to a significant Support level.
We want to catch the entire downward move if there will be a breakout. In this case:

• we should identify pairs that are highly positive-correlated parities to EUR/USD – for example GBP/USD
• we should identify highly negative-correlated pairs with EUR/USD - like USD/CHF, USD/JPY

If GBP/USD moves in similar conditions, close to a support while USD/CHF and USD/JPY move in the opposite direction to EUR/USD, near a resistance level, there is a high probability for a breakout.

However, if the correlation pair considered above doesn’t react as shown, this means that EUR depreciation is most likely not associated with USD appreciation but with factors like news from the Euro Zone. In this case, there may be just a false breakout.