TRY correlations review, 2010-2012

User Rating: / 2
Written by Forex Automaton   
Saturday, 25 August 2012 14:10

With this report, I begin a series of reports aiming to extend correlation analysis to a number of emerging currency pairs, such as Turkish Lira, never covered on this site up to now. Surprisingly for a currency pair with such a large interest rate differential, USD/TRY shows no signs of interesting autocorrelations in 2010-2012.

Technically, the new reports adopt a somewhat different approach to statistical uncertainty estimation. Instead of synthesizing mock time series with the volatility distribution of the real ones, producing their autocorrelations, and inferring the uncertainty from a comparison of many such analyses, as was done in 2008-2009, I now infer the uncertainty of the autocorrelation coefficients directly as a standard deviation of the sum, knowing the terms entering the sum. As before, hourly data are used.

USD/TRY chart 2010-2012 1.1

Fig.1. USD/TRY chart, 2010-2012, hourly candles.

The data used cover the period from November 14, 2010 till August 10, 2012, and are shown in a chart.

USD/TRY hourly autocorrelation 1.1

Fig.2. USD/TRY autocorrelation of hourly logarithmic returns, 2010-2012.

USD/TRY hourly autocorrelation, zoomed 1.1

Fig.2. USD/TRY autocorrelation of hourly logarithmic returns, 2010-2012, zoomed to show lack of structure. The line shows a least-square fit to the data.

The complete lack of autocorrelation structure means that USD/TRY at least does not make things worse (but does not make them better) when used alongside other currency pairs in pair trading. To fully evaluate the potential of USD/TRY for pair trading, an analysis of its correlations with other pairs, including the lagged correlations, is needed.

Bookmark with:    Digg    reddit    Facebook    StumbleUpon    Newsvine