Asset Correlation Tool v3, improved

21 giu 2019

I found this useful tool among the indicators but it wasn't doing the correlation study correctly.

Everything in markets, with only a few exceptions, are rising in value over time and therefore trended to time. The simplest method I found is to use link relative or first difference detrending, before calculating a correlation between assets.

I also updated it to include more assets, to use the latest Cryptocap indices like BTC.D/ETH.D/TOTAL2 and the top 100 crypto index CIX100. I improved the colour schemes, too

Included in the source code are some other ideas like the FRED:M1 and FRED:M2 (only on daily charts), the Yuan/Yen/EUR/USD, etc. There's lots of scope for correlating unrelated markets.

I'll keep updating it as I use it to find truly correlated assets. Some kind of signal line of known correlations, to subtract from the baseline fuzz of market activity.

Any improvements are most welcome; I'm a novice at best at statistics and build on others' work.

- mabonyi

21 giu 2019

Note di rilascio

Changed to first differences as the default. I already replaced circles with lines, to more clearly see the differences. Small transparency to make it legible.

7 mar 2020

Note di rilascio

This is the latest version for the revised Asset Correlation Tool, now version 4. It has a few striking new features:

• changed the short title to be very short, for those of us using it with 2/4/8 chart layouts
  
• "Same as symbol" timeframe support
  
• min-max normalisation
  
• mean normalisation
  
• z-score normalisation (aka standardisation: mean over stdev)
  
• the differentials will choose first-difference then link relative if both are enabled
  
• the normalisations are mutually exclusive and the first one enabled will be the one used
  
• you can use 1 differential (normal, first difference, or link relative) and 1 normalisation (min-max, mean, or standardise) together
  
• different plot styles and transparency defaults for maximum visibility
  

Example use case was that I saw a drop in correlation between USDCNH and CNYUSD which provided a great signal to trade.

I recommend you exercise caution and try to understand the reason for using the different algorithms. Each differential and each normalisation has its own purpose and this is only a crude tool.

As always, this isn't financial advice, do your own research, etc etc.