Hi dom,
i have found the informatios below in the help. Maybe this is what you
search.
Regards
Thomas Zmuck
www.tradingbasis.com
CORRELATION
- correlation
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Statistical functions
(AFL 1.4)
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SYNTAX
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correlation( ARRAY1, ARRAY2, periods )
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RETURNS
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ARRAY
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FUNCTION
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Calculates correlation between ARRAY1 and ARRAY2
using periods range
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EXAMPLE
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correlation( close, ref( close, -5 ), 5 ); - this
calculates correlation between close price and and close price 5 days back
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SEE ALSO
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References:
The CORRELATION function is used in the
following formulas in AFL on-line library:
More
information:
Updated on-line reference
Best regards
Thomas Zmuck
www.tradingbasis.com
-----Original Message-----
From: dom1_1998 [mailto:Dom2000@xxxxxxxxxxx]
Sent: Tuesday, February 15, 2005 1:42 PM
To: amibroker@xxxxxxxxxxxxxxx
Subject: [amibroker] Pair Trading
I copied this post from another site. I also did a check on Amibroker
.chm on "pair trading" but couldn't find anything close to
this method.
I'm not sure if our "Correlation or RSquared" formulas are
the same thing.
It calculates the correlation of any two stocks, and finds the max
negative correlation, then long one and short another.
For example, if one stock A showed price movement of 8%, 10%, 13% and
17% over four period.
step 1, calculate the mean of these returns.
mean(A) = (8+10+13+17)/4 =12
step 2, calculate the deviation.
period 1: 8-12=-4
p2: 10-12=-2
p3: 13-12=1
p4: 17-12=5
step 3, square the deviations.
get 16, 4, 1, 25
step 4, sum the squared deviations and divide by (n-1)
variance(A) = (16+4+1+25)/(4-1)=15.33
step 5, take the square root of the variance to calculate standard
deviation.
standard deviation(A)=sqrt(15.33)=3.92
Suppose a stock B returns 1%, 2%, 4%, 5% at the same period, with
same procedure, we get the standard deviation(B)=1.83, mean is 3
Calculate the covariance of stock A and B:
the formular is (Sum(A-MEANa)*(B-MEANb))/(n-1).
i.e. (8-12)*(1-3)+(10-12)*(2-3)+..+..=21
21/(4-1)=7
Finally, the correlation coefficient is 7/(3.92*1.83)=.976
The number ranges from -1 to 1. If stock B's return is 5%,4%,2%,1%
(reversed), the coefficient should be -.976. Choose the two with the
coefficient as near as -1. Long one and short another, but be sure
not to take the wrong direction. :-)
dom
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