Cross Correlation [Kioseff Trading]Hello!
This script "Cross Correlation" calculates up to ~10,000 lag-symbol pair cross correlation values simultaneously!
Cross correlation calculation for 20 symbols simultaneously
+/- Lag Range is theoretically infinite (configurable min/max)
Practically, calculate up to 10000 lag-symbol pairs
Results can be sorted by greatest absolute difference or greatest sum
Ability to "isolate" the symbol on your chart and check for cross correlation against a list of symbols
Script defaults to stock pairs when on a stock, Forex pairs when on a Forex pair, crypto when on a crypto coin, futures when on a futures contract.
A custom symbol list can be used for cross correlation checking
Can check any number of available historical data points for cross correlation
Practical Assessment
Ideally, we can calculate cross correlation to determine if, in a list of assets, any of the assets frequently lead or lag one another.
Example
Say we are comparing the log returns for the previous 10 days for SPY and XLU.
*A single time-interval corresponds to the timeframe of your chart i.e. 1-minute chart = 1-minute time interval. We're using days for this example.
(Example Results)
A lag value (k) +/-3 is used.
The cross correlation (normalized) for k = +3 is -0.787
The cross correlation (normalized) for k = -3 is 0.216
A positive "k" value indicates the correlation when Asset A (SPY) leads Asset B (XLU)
A negative "k" value indicates the correlation when Asset B (XLU) leads Asset A (SPY)
A normalized cross correlation of -0.787 for k = +3 indicates an "adequately strong" negative relationship when SPY leads XLU by 3 days.
When SPY increases or decreases - XLU frequently moves in the opposite direction 3 days later.
A cross correlation value of 0.216 at k = −3 indicates a "weak" positive correlation when XLU leads SPY by 3 days.
There's a slight tendency for SPY to move in the same direction as XLU 3 days later.
After the cross-correlation score is normalized it will fall between -1 and 1.
A cross-correlation score of 1 indicates a perfect directional relationship between asset A and asset B at the corresponding lag (k).
A cross correlation of -1 indicates a perfect inverse relationship between asset A and asset B at the corresponding lag (k).
A cross correlation of 0 indicates no correlation at the corresponding lag (k).
The image above shows the primary usage for the script!
The image above further explains the data points located in the table!
The image above shows the script "isolating" the symbol on my chart and checking the cross correlation between the symbol and a list of symbols!
Wrapping Up
With this information, hopefully you can find some meaningful lead-lag relationships amongst assets!
Thank you for checking this out (:
Correlationtrading
Correlation for Major Markets This indicator plots the correlation of major markets as an indicator. The major markets covered are the following:
DXY
GC
CL
ES
RTY
ZN
The chart shows all the correlations and cross-correlations of the above instruments plotted together. The user can go in the settings and choose what correlation to see, or if multiple correlations, choose to plot the indicator a second time.
Correlation TrackerCorrelation Tracker Indicator
The Correlation Tracker indicator calculates and visualizes the correlation between two symbols on a chart. It helps traders and investors understand the relationship and strength of correlation between the selected symbol and another symbol of their choice.
Indicator Features:
- Correlation Calculation: The indicator calculates the correlation between two symbols based on the provided lookback period.
- Correlation Scale: The correlation value is normalized to a scale ranging from 0 to 1 for easy interpretation.
- Table Display: A table is displayed on the chart showing the correlation value and a descriptive label indicating the strength of the correlation.
- Customization Options: Users can customize the text color, table background color, and choose whether to display the Pearson correlation value.
- The Correlation Tracker indicator utilizes a logarithmic scale calculation, making it particularly suitable for longer timeframes such as weekly charts, thereby providing a more accurate and balanced measure of correlations across a wide range of values.
How to Use:
1. Select the symbol for which you want to track the correlation (default symbol is "SPX").
2. Adjust the lookback period to define the historical data range for correlation calculation.
3. Customize the text color and table background color according to your preference.
4. Choose whether to display the Pearson correlation value or a descriptive label for correlation strength.
5. Observe the correlation line on the chart, which changes color based on the strength of the correlation.
6. Refer to the correlation table for the exact correlation value or the descriptive label indicating the correlation strength.
Note: The indicator can be applied to any time frame chart and is not limited to logarithmic scale.
