Correlations and Inverse correlation ES - Emini Index Futures Trading | futures io social day trading
futures io futures trading


Correlations and Inverse correlation ES
Updated: Views / Replies:3,841 / 18
Created: by sixsmith07 Attachments:4

Welcome to futures io.

(If you already have an account, login at the top of the page)

futures io is the largest futures trading community on the planet, with over 90,000 members. At futures io, our goal has always been and always will be to create a friendly, positive, forward-thinking community where members can openly share and discuss everything the world of trading has to offer. The community is one of the friendliest you will find on any subject, with members going out of their way to help others. Some of the primary differences between futures io and other trading sites revolve around the standards of our community. Those standards include a code of conduct for our members, as well as extremely high standards that govern which partners we do business with, and which products or services we recommend to our members.

At futures io, our focus is on quality education. No hype, gimmicks, or secret sauce. The truth is: trading is hard. To succeed, you need to surround yourself with the right support system, educational content, and trading mentors Ė all of which you can find on futures io, utilizing our social trading environment.

With futures io, you can find honest trading reviews on brokers, trading rooms, indicator packages, trading strategies, and much more. Our trading review process is highly moderated to ensure that only genuine users are allowed, so you donít need to worry about fake reviews.

We are fundamentally different than most other trading sites:
  • We are here to help. Just let us know what you need.
  • We work extremely hard to keep things positive in our community.
  • We do not tolerate rude behavior, trolling, or vendors advertising in posts.
  • We firmly believe in and encourage sharing. The holy grail is within you, we can help you find it.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.

You'll need to register in order to view the content of the threads and start contributing to our community.  It's free and simple.

-- Big Mike, Site Administrator

Reply
 4  
 
Thread Tools Search this Thread
 

Correlations and Inverse correlation ES

  #11 (permalink)
Elite Member
Quebec
 
Futures Experience: Intermediate
Platform: NinjaTrader wt Rancho Dinero's profiling tools
Broker/Data: Stage 5 trading/AMP/CQG
Favorite Futures: ES, NQ, YM
 
trendisyourfriend's Avatar
 
Posts: 3,698 since Oct 2009
Thanks: 3,042 given, 4,498 received


rleplae View Post
Any recommendation how to best calculate correlation ?

Pearson ? Spearman's rank ? Kendall's rank ? Brownian correlation ? Any other ?

I am trying to implement a practical correlation between instruments...
Any thoughts/ideas welcome

Adam Grimm in his webinar mentionned he was not able to find a mathematical edge in correlation.

Reply With Quote
The following 2 users say Thank You to trendisyourfriend for this post:
 
  #12 (permalink)
Elite Member
Stockholm
 
Futures Experience: Advanced
Platform: NinjaTrader,Sierra Chart, Python
Broker/Data: IB
Favorite Futures: ES & Stocks
 
Posts: 86 since Apr 2013
Thanks: 80 given, 71 received


trendisyourfriend View Post
Adam Grimm in his webinar mentionned he was not able to find a mathematical edge in correlation.

@Big Mike,
I have seen using it in your trading. Do you disagree with Adam Grimm?

Reply With Quote
The following user says Thank You to donedge for this post:
 
  #13 (permalink)
Site Administrator
Manta, Ecuador
 
Futures Experience: Advanced
Platform: My own custom solution
Favorite Futures: E-mini ES S&P 500
 
Big Mike's Avatar
 
Posts: 46,240 since Jun 2009
Thanks: 29,355 given, 83,237 received



donedge View Post
@Big Mike,
I have seen using it in your trading. Do you disagree with Adam Grimm?

I asked him the question, as I recall.

If you are referring to my own trading, I use several markets/tickers side-by-side to trade ES. But to simplify them to solely "correlation" is a mistake. Sometimes they are correlated or inversely correlated, but other times they give you an idea of where money is flowing. I don't think it is very practical to track such things solely on an intraday basis, you need to look at the broader picture. These moves tell a story over time of days and weeks, letting you know how the market is shifting. The market is always moving in search of alpha, your job as a trader is to understand everything in a broad context and form hypothesis then trade them and learn if you were right or wrong.

I agree with most everything that Adam said from a general point of view, but I do not know his exact testing methodology and can't comment on it.

Mike

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

Need help?
1) Stop changing things. No new indicators, charts, or methods. Be consistent with what is in front of you first.
2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
3) Set goals for yourself to reach daily. Make them about how you trade, not how much money you make.
4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance.
5) Where to start as a trader? Watch this webinar and read this thread for hundreds of questions and answers.
6)
Help using the forum? Watch this video to learn general tips on using the site.

If you want
to support our community, become an Elite Member.

Reply With Quote
The following 3 users say Thank You to Big Mike for this post:
 
  #14 (permalink)
Trading Apprentice
western NY
 
Futures Experience: Intermediate
Platform: NinjaTrader, Python
Favorite Futures: equities, bonds, currency, commodities
 
Posts: 42 since Apr 2015
Thanks: 9 given, 25 received

Here is a rolling 20 day correlation between the S&P and 10 year returns. Of course there is much noise in market data.
Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).


To me market regimes are basically sets of correlations between instruments that reflect how fundamental economic forces are playing out.

From the chart above for me I like to buy when things are hairy and sell when things are normal. Or at least not be selling when things are hairy. Like right now I like that the markets have not dipped much when the 10 year correlation has got completely out of whack since the last fed meeting. Now the edge would be in knowing if things will go back to "normal" or if things have structurally changed. That kind of thing is not testable or knowable IMO.

Reply With Quote
The following 2 users say Thank You to Darthtrader4beta for this post:
 
  #15 (permalink)
Elite Member
Washington DC
 
Futures Experience: Beginner
Platform: TradeStation and Sierra
Broker/Data: TradeStation/S5Trading
Favorite Futures: Futures
 
Investorito's Avatar
 
Posts: 54 since Dec 2010
Thanks: 298 given, 60 received

If you are looking at correlations you may want to check the following website. It has correlations (and inverse) based on several timeframes.

http://www.mrci.com/special/correl.htm


Sent from my iPad using Tapatalk

Reply With Quote
The following 2 users say Thank You to Investorito for this post:
 
  #16 (permalink)
Elite Member
seoul, Korea
 
Futures Experience: Intermediate
Platform: Multicharts
Broker/Data: CQG, DTN IQfeed
Favorite Futures: YM 6E
 
treydog999's Avatar
 
Posts: 894 since Jul 2012
Thanks: 291 given, 1,006 received

I would say correlation can be really advantageous of a tool. I also disagree that there is not "edge" to be found in it. Its a tool as anything in trading, it depends what your using it for. I am assuming that you are calculating the correlations correctly using ratio back adjusted contracts, and using log returns.

When people think of using correlation as an edge they think pairs trading, obviously correlation is going to be important. In this case though having co-integration and finding a unit root is more important, but your rarely going to find 2 instruments that are co integrated that are non correlated.

But more importantly I think correlation tools come more into their own when you look at portfolio building. Correlation between any 2 or more given instruments held in the portfolio, and correlation between any 2 or more strategies traded on the portfolio. No only does VAR risk management use a co variance matrix(related to correlation) but it is a requirement for all institutions. We can discuss the pros and cons of using VAR in the first place and tail stuffing but that's for another post. If you do not measure the correlation you can not gain anything from diversification, either in additional rewards or reduced risk.

Most people are solely looking at the correlation coefficient, is it .80 or .2 or -.73 etc. I think that's not painting the entire picture, you also need to look at its stability. As with all things in the market nothing is fixed, but is fluid. So you must measure not only their value but also their possible range of values over some look back. even 20 days, is a fairly short time frame given we are looking for larger market relationships. 90 days or 120 days are IMHO more important as single instrument event driven volatility will be averaged out more.

Take 2 correlation coefficient values for example:

Today A = .90, but over the last 180 days has ranged .45 to .95

or

Today B = .70 but over the last 180 days ranged between .65 and .75


Which one would you rather use as a baseline or investigate for a trading edge?

Most people would shun the .70 because it is only moderately significant (<.80) but it is much more stable. But you know exactly what you are getting into, while A at .90 is highly significant but can alter dramatically.


Also don't forget you can use linear regression or modelings as well to find the relationship between 2 instruments, its simple and easy. Correlation is not the only tool for this.

Reply With Quote
The following 5 users say Thank You to treydog999 for this post:
 
  #17 (permalink)
Elite Member
Stockholm
 
Futures Experience: Advanced
Platform: NinjaTrader,Sierra Chart, Python
Broker/Data: IB
Favorite Futures: ES & Stocks
 
Posts: 86 since Apr 2013
Thanks: 80 given, 71 received


treydog999 View Post
I would say correlation can be really advantageous of a tool. I also disagree that there is not "edge" to be found in it. Its a tool as anything in trading, it depends what your using it for. I am assuming that you are calculating the correlations correctly using ratio back adjusted contracts, and using log returns.

When people think of using correlation as an edge they think pairs trading, obviously correlation is going to be important. In this case though having co-integration and finding a unit root is more important, but your rarely going to find 2 instruments that are co integrated that are non correlated.

But more importantly I think correlation tools come more into their own when you look at portfolio building. Correlation between any 2 or more given instruments held in the portfolio, and correlation between any 2 or more strategies traded on the portfolio. No only does VAR risk management use a co variance matrix(related to correlation) but it is a requirement for all institutions. We can discuss the pros and cons of using VAR in the first place and tail stuffing but that's for another post. If you do not measure the correlation you can not gain anything from diversification, either in additional rewards or reduced risk.

Most people are solely looking at the correlation coefficient, is it .80 or .2 or -.73 etc. I think that's not painting the entire picture, you also need to look at its stability. As with all things in the market nothing is fixed, but is fluid. So you must measure not only their value but also their possible range of values over some look back. even 20 days, is a fairly short time frame given we are looking for larger market relationships. 90 days or 120 days are IMHO more important as single instrument event driven volatility will be averaged out more.

Take 2 correlation coefficient values for example:

Today A = .90, but over the last 180 days has ranged .45 to .95

or

Today B = .70 but over the last 180 days ranged between .65 and .75


Which one would you rather use as a baseline or investigate for a trading edge?

Most people would shun the .70 because it is only moderately significant (<.80) but it is much more stable. But you know exactly what you are getting into, while A at .90 is highly significant but can alter dramatically.


Also don't forget you can use linear regression or modelings as well to find the relationship between 2 instruments, its simple and easy. Correlation is not the only tool for this.

Very good post! I have followed the U.S. Dollar and its correlation with the s&p500 index. These normally follows each other, but the last months the correlation gone from +.6 to negative correlation.

My understanding, is investors are selling the dollar and going to other currencies less valued. The stock market in Brazil and China have going up very well the last months and the sp500 range bounding. My idea by selling the ES and purchasing the Brazilian stock market has been quite profitable.

Reply With Quote
 
  #18 (permalink)
Trading Apprentice
Seoul South Korea
 
Futures Experience: Beginner
Platform: NinjaTrader
Favorite Futures: ES
 
Posts: 14 since Jun 2014
Thanks: 0 given, 5 received

Recently there has been a tendency for the ES to rally when the euro rallies, as the dollar is getting weaker, and vice versa when the dollar is getting stronger, ES tends to weaken.
But historically, the dollar and ES have a low correlation.

Reply With Quote
 
  #19 (permalink)
Elite Member
New York, NY
 
Futures Experience: Beginner
Platform: NinjaTrader
Broker/Data: NinjaTrader
Favorite Futures: ES
 
Posts: 779 since Nov 2010
Thanks: 135 given, 208 received

correlation indicator

I just created a correlation indicator that may be of interest to some of you.

https://futures.io/ninjatrader/36963-atgpairscorrelation-indicator-support.html#post519448

Reply With Quote

Reply



futures io > > > > Correlations and Inverse correlation ES

Thread Tools Search this Thread
Search this Thread:

Advanced Search



Upcoming Webinars and Events (4:30PM ET unless noted)

Jigsaw Trading: TBA

Elite only

FuturesTrader71: TBA

Elite only

NinjaTrader: TBA

Jan 18

RandBots: TBA

Jan 23

GFF Brokers & CME Group: Futures & Bitcoin

Elite only

Adam Grimes: TBA

Elite only

Ran Aroussi: TBA

Elite only
     

Similar Threads
Thread Thread Starter Forum Replies Last Post
Crude Oil (CL) futures inverse pairing options Big Mike Commodities Futures Trading 8 December 12th, 2013 12:00 PM
inverse charts tradestation Learn2Trade TradeStation 3 August 8th, 2013 08:22 PM
Evaluating correlations keymoo Reviews of Brokers and Data Feeds 1 July 6th, 2013 04:52 AM
Inverse correlation between school education and trading? YJ78 Traders Hideout 30 December 12th, 2012 04:01 PM
Guest Post: The Greatest Short - Why All Correlations Are Moving To 1 Quick Summary News and Current Events 0 October 30th, 2011 07:35 PM


All times are GMT -4. The time now is 07:39 PM.

Copyright © 2017 by futures io, s.a., Av Ricardo J. Alfaro, Century Tower, Panama, +507 833-9432, info@futures.io
All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts
Page generated 2017-12-17 in 0.18 seconds with 20 queries on phoenix via your IP 54.163.209.109