Thanks for the reply BlueRoo. Let me try to get some clarification if possible. So, USO ranged from 0.9 to 1.15? How are you determining the lower and upper bounds? I would think to normalize it, that the lower would be zero, and the upper would be one, as opposed to the most common value being 1. Sorry if I'm being dense, I'm just trying to understand your methodology, so I can examine the best way to compare across instruments. I would think that to do so, you need to compare percentage movement of the product itself.
This works much like taking historical volatility and turning it into a percentile so you can measure the volatility of the current daily price against its history.
Each daily price is calculated as a percentile for the period of the study.
It is really simple.
If the average price for the period of the study is $1.00 and today's price is 80 cents then today's price is 20% below the average for the period (or a percentile of .8). If today's price is $1.20 then today's price is 20% above the average for the period (or a pecentile of 1.2).
For the range you mentioned of .9 to 1.15. Remember 1 is the average. But the distribution of price for the period of the study is skewed to the upper side. Therefore price spent more time above the average then below it for the period of the study.
Very happy to have anyone improve what I am doing so critical comments welcomed.
The following user says Thank You to BlueRoo for this post:
Chris (MGBRoadster), Saw you chart post for Lean hog for October contract. Looking at your charts it looks like there is no seasonal pattern. Using the work I have been doing and you may have seen my other posts I post the Lean Hog continuous contract seasonal chart below. (Need to do some more work before I can create seasonal charts for each contract month on the fly). It has been my understanding that lean hog tends to rally into Christmas. To test this idea I have used the last 3 years to create the seasonal chart below. At least for the last 3 years it seems that this is the case.
No this brings up a good point. How many years should a seasonal chart be based upon? And what effect does this choice have on reliability?
Questions aside let me know what your thoughts are Chris on this seasonal chart for Lean Hog?
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Note: If anyone sees these charts and thinks they are incorrect compared to work they are doing please let me know. I am happy to be corrected.