Sunday, February 20, 2011

Correlation among profits

We define an indicator:

aispos(t) = max. profit if a long position has been opened at time t-T

aisneg(t) = max. profit if a short position has been opened at time t-T

With this indicator, we try to study correlation and mutual information between different forex.

Considering the forex EURCHF, USDCHF, USDJPY, GBPJPY, GBPUSD, EURUSD numbered from 1 to 6, I'm showing here the graphical results:

What does it mean for me? That it could be frustrating trying to predict when it's a good moment to buy a long position (the same analysis should be done for short positions) for these FX with low correlation and low AMI for every other FX.

Maybe I should explain what AMI is...

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