too dumb

Discussion in 'Strategy Development' started by man, Apr 3, 2003.

  1. man

    man

    to figure that out. I build three time series for daily data on the spx. I calculate ln(Ht0/Ot0), ln(Lt0/Ot0) and finally ln(Cto/Ot0). Thus I have three percentages each day for the High, Low and Close, all three referenced to the open.

    Now when I build correlations among them I find high correlations between high/open:close/open as well as for
    low/open:close/open. They are between 0.7 and 0.8 and I do not understand why they exist. Why is the relation between High and Open highly correlated to the relation between close and open, plus the same for Low to open???

    It must be wrong and stupid and I do not see why? Anyone an idea, since I really seem to have a blackout on this.


    peace
     
  2. The problem lies the use of logarithm (I assume your "Ln(Ht0/Ot0)" means you take log of the ratio of Ht0/Ot0). Since Ln(Ht0/Ot0)=Ln(Ht0) - Ln(Ot0), the reference point of opening price has been canceled out. So these correlations are saying if today's high (or log of high, to be more precise) is higher than yesterday's high then 70% to 80% the time today's low is also higher than yesterdays' low, which makes sense. Try re-run the correlations using Ht0/Ot0 and Lt0/Ot0 without log. Hope this helps.
     
  3. BKuerbs

    BKuerbs

    Have a look at the range: That is the difference between High and Low, R = High - Low.

    When the range is large, chances are LN(H/O) is large ditto for the other relations and when the range is low all these relations have a small value. That's all.

    I have not looked at these relations too closely, the only thing I looked at was the relation H/C during up and down trends.

    Regards

    Bernd Kuerbs
     
  4. man

    man

    Tao
    I will try as you say (I am currently just not at the computer I use to do this). But hence that your final explanation can hardly be valid, since I do not have any reference to yesterday at all. I took the log, since I am used to and with this small numbers it usually does not make any difference.
    It is still not completely clear to me, but thanks for posting. I come back once I know.


    peace
     
  5. man

    man

    Bernd
    I am currently making quite different things in that field. range depending on trend, daily intradaychange, overnight change - it is rather interesting stuff.
    I am not sure with your explanation - the correlations are much too high. I still think I did some really stupid mistake that I am too blind to see.


    peace
     
  6. man

    man

    Tao
    using percentage instead of log doesn't change the picture.


    peace
     
  7. BKuerbs

    BKuerbs

    Introduce the range as grouping variable for your H/O etc. numbers and do some ANOVA or better the non-parametric equivalent. I did not do it, but I'm confident it will be significant.

    Regards

    Bernd Kuerbs
     
  8. man

    man

    bernd
    my current problem is too much of significance - not too little. thnx anyways.


    peace