Correlation on Tick Data
just to elaborate a bit more on what matt said. you need to make sure you time series are stationary before you correlate them. usually one does this by using a unit root test but, in your case, since you are dealing with currencies, as long as you are dealing with the returns streamsand not the prices themselves, there's really no need to use the unit root test. returns should be stationary ( in general ). if you're dealing with prices, then correlations don't make sense because prices aren't ( in general ), or atleast i've never seen prices that were.
On Tue, Jul 22, 2008 at 10:14 AM, Matthieu Stigler wrote:
Hello If ES and YM are time series, you maybe should first test for auto-correlation of the series. High auto-correlated series can lead to the phenomen called as spurious regression, and then the correlation coefficient is "too high". Hope this helps Mat Neil Gupta a ?crit :
Hello R users. I was using R to calculate correlation of midquote returns on ES and YM. ES and YM are highly correlated at close to .97. However when I run the correlation on the MQ returns the correlation is close to 0. Should I be expecting this or am I doing something wrong? Others have told me this should happen, but I do not understand why. If anyone can please explain I would really appreciate. Many Thanks, Neil [[alternative HTML version deleted]]
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