Correlation Settings

Updated 02/17/12

This is part of the Parameters Dialog Box

The number of days between samples used to calculate the correlation. Using a value of two would use a sample every other day.

 In most cases, correlation is surprisingly consistent and does not vary greatly by changing the Length in Days. There are some interesting Contrary Strategies that can be used when correlation does change significantly when changing the parameters.

The minimum number of sample is 6. However, more are suggested. When sampling over a period of less than 60 market days, always use a correlation length of 1. When sampling over many years, using a longer sample will maintain a more consistent correlation between issue.

What does this mean to me?

Do NOT trade between issues whose 22-day correlation is greater than  90%. Pairing strategies between highly correlated issues, generally, does not increase return.

DO use AccuTrack to trade between low and modestly correlated issues that have well-matched SD measurements where the SD is about the same for both issues. If the SD is much greater for one of the issues, then AccuTrack's trading will be totally governed by the moves of the volatile issue instead of the moves of both issues.

Click for more Correlation Trading Strategies.