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Hi all
If one believes that the dependence structure of 2 variables is linear then
the Pearson coefficient is fine BUT....
A more general measure of concordance such as Kendall's Tau or Spearman's
Rho provides a more rigorous measure of dependence, especially when markets
are behaving wildly or away from what is normally expected.
Cheers
Tim
-----Original Message-----
From: Jim Johnson [mailto:jejohn@xxxxxxxxxxx]
Sent: Friday, August 23, 2002 5:48 PM
To: omega-list@xxxxxxxxxx; Ross S Bond
Subject: Re: Correlation Math Help
Hello Ross,
Coefficient r is the Pearson Product Moment Correlation coefficient.
Linear regression is the equation for the line of best fit between the
two variables. The way I think of it correlation coefficient
(squared actually) tells you the amount of variance predicted in variable a
by variable b.
If you know r you can establish the regression equation. The larger
the absolute value of r, the less the variation around that line of
best fit.
That said, I have no idea how one establishes the correlation between
systems.
Best regards,
Jim Johnson mailto:jejohn@xxxxxxxxxxx
--
Friday, August 23, 2002, 7:56:03 PM, you wrote:
RSB> Hello OmegaList,
RSB> I am trying to determine correlation between market systems - am I
RSB> correct to use the linear correlation coefficient r (from page 10 of
RSB> Vince's Mathematics of Money Management), or should I be looking at
RSB> something like linear regression?
RSB> Thanks in advance :)!
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