Rhody Trader
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Many charting packages have correlation studies that will plot it over time, which can be quite informative. Alternatively, you could run it in Excel (there's a function). It doesn't have anything to do with ATRs, though, unless you run it specifically on the ATRs.
Hi Rhody,
One other question if you dont mind (got a bit of a project on the go), if I was running a correlation study on the closing prices of 2 markets, would I have to include normalising factors and spread ratios or would the close vs the close do? Say I was running a correlation study between oil and the dow, would I need to multiply the closes by a spread multiplier?
i have managed to find the excel formula for correlation function (thanks for the pointer) and have downloaded historical closing prices and run a correlation function but it doesnt look right.
Many thanks
One other question if you dont mind (got a bit of a project on the go), if I was running a correlation study on the closing prices of 2 markets, would I have to include normalising factors and spread ratios or would the close vs the close do? Say I was running a correlation study between oil and the dow, would I need to multiply the closes by a spread multiplier?
i have managed to find the excel formula for correlation function (thanks for the pointer) and have downloaded historical closing prices and run a correlation function but it doesnt look right.
Many thanks
i don't know what a "spread multiplier" is, but the way to normalize prices is to look at the percentage return over each period. i would add that linear regression/R-squared is helpful here as well and if your running a long period it may be best practice to look at the log return.
Rhody Trader
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Not sure what you mean by not looking right. I'd agree with cr6196 that if you really want to do it in a fully normalized fashion you'd want to use periord returns rather than absolute prices. I'd also run the correlation in a rolling fashion, like a moving average, as correlations most definitely change considerably over time.
cheers by "not looking right" I was seeing negative correlations in markets that i could see on the chart were both moving in the same direction. Have realised that the data wasnt pulled accurately though, i.e times and dates didnt match which obviously made a difference.
Just wanted to check that close vs close is the correct data and you dont need to adjust the closing prices by a normalising factor. i.e one trades in half ticks the other full ticks etc
appreciate the help
Just wanted to check that close vs close is the correct data and you dont need to adjust the closing prices by a normalising factor. i.e one trades in half ticks the other full ticks etc
appreciate the help
