Have you tried using EMA-like processing to weight the most recent
events higher?
so
n++;
sumX += balance;
sumXX += (balance * balance);
sumY += price;
sumYY += (price * price);
sumXY += (price * balance);
becomes:
n++;
sumX += alpha * (balance - sumX);
sumXX += alpha * (balance * balance - sumXX);
sumY += alpha * (price - sumY);
sumYY += alpha * (price * price - sumYY);
sumXY += alpha * (price * balance - sumXY);
It seems like this should do the trick...
On Aug 4, 4:22 pm, nonlinear5 <[email protected]> wrote:
> I have a new indicator, called DepthPriceCorrelation. It's not in the
> release yet, but it's in
> SVNhttp://code.google.com/p/jbooktrader/source/browse/trunk/source/com/j...
>
> The indicator is based on the idea that current price can be
> considered "fair" when the correlation between market depth balances
> and market prices is positive. This positive correlation occurs when:
>
> -- high depth balances are accompanied by higher prices
> or
> -- low depth balances are accompanied by lower prices
>
> When the correlation is negative, the prices are moving in the
> direction opposite from the direction of depth balances, and I call it
> a "high tension" condition. This is when my strategy gets into a
> position on the bet that the tension will ease and the correlation
> will return to its "normal" positive value. Here is an example of such
> a
> strategy:http://code.google.com/p/jbooktrader/source/browse/trunk/source/com/j...
>
> Now, to calculate the correlation, the indicator simply updates the
> running sums for prices and balances, and then uses a standard
> correlation coefficient formula to come up with the result. This is
> very efficient, and it works well. The problem is, sometime in the
> second half of the trading session, the indicator becomes too "stale",
> because it uses all the data accumulated so far during the trading
> session. So, at say, 2pm, the indicator would represent the
> correlation between balances and prices based on all the data from
> 9:30am to 2pm, while my strategy is looking for a shorter term
> correlation, such as the last 2 hours. It's certainly possible to
> recalculate the indicator based on this 2-hour moving window, but it
> would be very computationally expensive, since every time, I would
> need to loop through the last two hours of values, instead of simply
> updating the running sums.
>
> So, here is the question for the algorithmically inclined. How do I
> *efficiently* calculate the correlation between X and Y in a moving
> time window?
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