Correlation Analysis

Discussion in 'Technical Analysis' started by ImamicPH, Jul 17, 2006.

  1. colion


    If one does not have the foggiest about correlations, the starting point is to use a charting program or spreadsheet to calculate and display the correlation.
    #11     Jul 17, 2006

  2. It's not that I don't know how to find correlation. I do this for a living.

    I mixed up the term correlation as defined by math and science, and the term "correlation" as we throw it around our office.

    I think word I was intended was "divergence in terms of percentage of price".

    These two used together may be used to screen for trade setups.

    I've got the correlation done for about ten different markets.
    #12     Jul 17, 2006
  3. correlation ranges from -1 to +1. perfectly negative correlation (-1) means the two move in complete opposite direction ( X gains 1%; y loses 1%). perfectly positive correlation means they move in complete synch with each other...if X gains 1%, y gains 1%.
    #13     Jul 17, 2006
  4. Murray Ruggiero

    Murray Ruggiero Sponsor

    Another factor you can look at is the correlation of the equity curves for a given system. If you are trying to build a portfolio of lowly correlated markets to test a basket system, then correlation of the equity curves is the best measure. You might find it hard to believe but , for a ORB system the SP500 and Nasdaq correlation is in the .2 to .3 range, not as high as you would think.
    #14     Jul 17, 2006
  5. colion


    Do you mean relative performance? If so, C(n) - C(1) / C(1).
    #15     Jul 17, 2006
  6. rosy


    you correlate based on returns NOT price levels.
    #16     Jul 17, 2006
  7. Murray Ruggiero

    Murray Ruggiero Sponsor

    Yes, I am using correlation to build a portfolio which has it's members not highly correlated on a equity curve basis.

    I discuss this correlation report half way down this page

    I will upload a sample workbook with this report in it so everyone can see it.
    #17     Jul 17, 2006
  8. I'm a little thick tonight -- what does that even mean?
    #18     Jul 17, 2006
  9. Murray Ruggiero

    Murray Ruggiero Sponsor

    I simply do correlation analysis on the daily, weekly or monthly changes in the equity curve of the system.
    #19     Jul 17, 2006
  10. Oh my guys make it so complicated are not even close...
    #20     Jul 17, 2006