Zero sample correlation does not necessarily mean there is no linear relationship - page 32
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Nasdaq (#QQQQ) and S&P500 (#SSO) (10,000 QC, 2010.07.09 - 2011.03.04):
Correlation is also hyper-high. At the same time, it tends asympotically to unity as the interval grows.
Anyone can do this kind of research. I used this script without changing anything in it.
Perhaps I should make something digestible for CodeBase.
The high correlation is confirmed. The most highly correlated interval is exactly one day (24 hours). I think this is a coincidence.
It is confirmed, but how to trade it?! =)
Let's take eursud and gbpusd as an example. eurgbp shows their direct correlation, or am I wrong? but volatility of eur and gbp is different....
If yes, may I ask an expert? Can I draw a separate currency chart from this triangle, so to say indexes?
Let's take eursud and gbpusd as an example. eurgbp shows their direct correlation, or am I wrong? Although the volatility of eur and gbp are different....
I do not understand where these questions arise from. You can draw an analogy:
Can you take your mind off the names of the euro, pound, etc. just a little bit. And look at the wording of your question detached from those damn names?
BP3 does not characterise the whole relationship between BP1 and BP2.
Going back to the bloody names. EUR/GBP is simply an expression of the euro through the pound. In the same way, EUR/USD, EUR/GOLD, EUR/potato can be expressed as an expression of the euro in potatoes. And don't tell me you can't measure EUR in potatoes. When you go to the shop, you see the price tag potato/EUR - potato in EUR. Turn it over and you get what I wrote about above.
You will say that potatoes will cost differently in different shops. Right, if you add up all the available price tags, you get a kind of table ("glass") of price tags, where at each level there is a different price of potatoes and their volume (the final number of potatoes in the shop) in the place where they are sold at that price. As a result, you will always have the whole potato picture.
Obviously, there will be times when you can buy potatoes somewhere at such a price that if you sell them (the shops are not only sellers, but also buyers) elsewhere - you will make a profit. This happens because of a lack of awareness (transport and other overheads are omitted for now) between the shops. This situation is called arbitrage. And the cleverest (arbitrageurs) take advantage of it by reselling potatoes in this way.
I have described to you how the EUR/potatoes exchange rate is formed. The same applies to all other rates, including the widely adored EUR/USD.
This entire passage was just to make you realise that any value is always measured in something. For example, you have two straight sticks. You can express their length in feet, metres, fathoms, etc. Or you may not express them in anything. You need to know which stick is longer. You put the sticks together and see that the second stick is longer than the first. It would seem that you are comparing the two lengths without measuring them in anything at all. But this is not the case. When you put the two sticks together, you unknowingly measure the length of the second stick in the length of the first stick and vice versa.
Is it possible to draw currency graphs separately from a given triangle, indexes so to speak?
You cannot. And it follows from the above. There is no triangle, just EURUSD, GBPUSD and the always correct EURGBP = EURUSD / GBPUSD ratio. You can't express the currencies separately, just like you can't express the lengths of sticks without measuring them in some way. Your question is absolutely absurd.
If you don't like to measure a currency in another currency, then take the USD/potato exchange rate. Knowing that rate, you can always express any currency in potatoes: EUR/potatoes = EURUSD * USD/potatoes. Of course, you can replace potatoes with anything you like.
So when they talk about currency indices (the dollar index, for example), it's just measuring a currency in its own potato. No more and no less.
I don't understand where these questions are coming from. An analogy can be made:
Can you take your mind off the names of the euro, pound, etc. just a little bit. And look at the wording of your question detached from those damn names?
BP3 does not characterise the whole relationship between BP1 and BP2.
Going back to the bloody names. EUR/GBP is simply an expression of the euro through the pound. In the same way, EUR/USD, EUR/GOLD, EUR/potato can be expressed as an expression of the euro in potatoes. And don't tell me you can't measure EUR in potatoes. When you go to the shop, you see the price tag potato/EUR - potato in EUR. Turn it over and you get what I wrote about above.
You will say that potatoes will cost differently in different shops. Right, if you add up all the available price tags, you get a kind of table ("glass") of price tags, where at each level there is a different price of potatoes and its volume (the final number of potatoes in the shop) in the place where it is sold at that price. As a result, you will always have the whole potato picture.
Obviously, there will be times when you can buy potatoes somewhere at such a price that if you sell them (the shops are not only sellers, but also buyers) elsewhere - you will make a profit. This happens because of a lack of awareness (transport and other overheads are omitted for now) between the shops. This situation is called arbitrage. And the cleverest (arbitrageurs) take advantage of it by reselling potatoes in this way.
I have described to you how EUR/potatoes exchange rates are formed. The same applies to all other rates, including the widely adored EUR/USD.
This entire passage was just to make you realise that any value is always measured in something. For example, you have two straight sticks. You can express their length in feet, metres, fathoms, etc. Or you may not express them in anything. You need to know which stick is longer. You put the sticks together and see that the second stick is longer than the first. It would seem that you are comparing the two lengths without measuring them in anything at all. But this is not the case. When you put the two sticks together, you have unknowingly measured the length of the second stick in the length of the first stick and vice versa.
You can't. And it follows from the above. There is no triangle, just EURUSD, GBPUSD and the always correct ratio EURGBP = EURUSD / GBPUSD. You cannot express the currencies separately, just as you cannot express the lengths of sticks without measuring them in some way. Your question is absolutely absurd.
If you don't like to measure a currency in another currency, then take the USD/potato exchange rate. Knowing that rate, you can always express any currency in potatoes: EUR/potatoes = EURUSD * USD/potatoes. Of course, you can replace potatoes with anything you like.
So when they talk about currency indices (the dollar index, for example), it's just measuring a currency in its own potato. No more and no less.
It's confirmed, but how do you trade it?! =)
Well, here again it is simple. Since AUDUSD and NZDUSD are highly correlated, the simplest conclusion is that AUDNZD is "returnable" or "flat".
For liquid pairs, the 2H rule works: if you build a ZigZag with the condition that the knee is at least H, then the average knee of the ZigZag will be 2H. The triggering of such a rule indicates the efficiency of quoting the pair. Efficiency is a behaviour akin to SB (random walk). Obviously, SB behaviour is best for the market, as market participants earn and lose equally. That is, the market is in equilibrium.
So for AUDNZD the 2H rule is also fulfilled. But I brought the video for a reason. Exactly this video shows what no figures on the Internet resources and charts that I have cited below the video can show. You can see on each still image how the correlation changes. You can see some periodicity in the peaks (high correlation). So, when the correlation is high, you can find these tops in advance without much risk. And this fully applies to AUDNZD.
For example, I only plotted the change of correlation for the entire time frame (a little over a year). But I could just as well plot it not for the entire time, but for some parts of that time. For example, from 12 to 24 hours. Why do I say that. It's all about the same periodicity of the tops. You can try to "catch" the periodicity even in this blunt way.
Once you have managed to "catch" these tops, the 2H rule will no longer work. At the spots of the top tops, the average ZigZag knee will be less than two and it is a "flat" trade.
hrenfx:
1)... The triggering of such a rule indicates the efficiency of quoting a pair.
2) Efficiency is a behaviour akin to SB (random walk).
3) Obviously, SB behaviour is best for the market, as market participants make and lose equally. That is, the market is in equilibrium.
Why should I have to justify anything?! I even gave you a stationary combination on this forum at your request. What is the point of my writing?
I don't want to get negative emotions from the discussion, proving for no good reason that I'm not a camel.
The wording of the 2H rule is mathematically given above. You can test it on all liquid pairs and on SB. I did this before I wrote. Because I check everything and don't take our word for it.
The market is efficient when there is no skewness in it. Skewness is a pattern. Regularities do not exist in SB. There is always inefficiency in a real market. The most basic one is "milked" through HFT arbitrage.
P.S. Directly quoted liquid financial instruments themselves are very efficient. I.e. it is extremely difficult to trade a single FI profitably. However, artificial FIs have worse performance. The same AUDNZD is an artificial FI (yes, it is liquid, but that is because of the liquidity of the AUDUSD and NZDUSD majors) which is poorly traded directly at the banks.