Wich data for correlation?

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Old Feb 4, 2007, 9:42pm   #1
Joined Jun 2006
Wich data for correlation?

I'm trying to measure the correlation between markets, but i'm not sure of what value i'm supposed to measure.. is the percentage change since the last bar, or what should I use?

/Johan
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Old Feb 4, 2007, 10:24pm   #2
 
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Normally you correlate the returns.

log(price/price[1])
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Old Feb 5, 2007, 10:49am   #3
 
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Quote:
Originally Posted by Perigon
I'm trying to measure the correlation between markets, but i'm not sure of what value i'm supposed to measure.. is the percentage change since the last bar, or what should I use?

/Johan
You probably mean you are trying to measure the cross-correlation between two markets. I think that the term "correlation" refers to a constant in linear approximations of the form y=ax+b or it is a measure of linear dependence of two variables x and y.

Keep in mind that correlation can be zero but two variables can be dependent, except in very special cases.

Cheers - - Alex
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