4 ms·
Prices aren't stationary, which means (essentially) that they move around and compound on themselves. Correlation assumes that the two time series being correla
by darawk 8y ago
Prices aren't stationary, which means (essentially) that they move around and compound on themselves. Correlation assumes that the two time series being correlated are stationary. If you want to correlate two price series, you do so using returns (e.g. +1%, -2%, ...), which are a stationary series. If you run a correlation on price series, you'll get silly high values like 94%.
- eigenvalue 8y agoI'd go further and suggest using changes in the logs of the price over time.
- darawk 8y agoMy understanding is that using the first difference of the log is just an approximation of % change that is in common usage primarily because it was computationally faster and because it's closed form is smooth. I could be wrong though. Is there some advantage to doing that that i'm unaware of?