The importance of correlations between assets in day and swing trading

Last Updated on 3 August 2022 by automiamo.com

My dashboard on Tradingview to monitor correlations between assets

I always monitor correlations before doing day trading or swing trading on more assets, at the same time.

Correlation is a measure that defines how different assets move in relation to one another. The more the correlation coefficient is, the more they are aligned closely.

I have created a dashboard on Tradingview to do this.

I monitor correlation on monthly, weekly, daily timeframes. An example use case below:

  1. I want to go short now S&P500. “Green light” from my Strategy A, after backtesting the S&P500
  2. I want to go short now BTCUSD. “Green light” from my Strategy B, after backtesting the BTCUSD

Monthly correlation between S&P500 and BTCUSD (using 1-D chart and correlation length = 20) is 95%

Weekly correlation between S&P500 and BTCUSD (using 1-D chart and correlation length = 5) is 98%

Weekly correlation between S&P500 and BTCUSD (using 30-minutes chart and correlation length = 240) is 65%

Daily correlation between S&P500 and BTCUSD (using 30-minutes chart and correlation length = 48) is 69%

Correlation between these two assets is too high, will move in tandem, so preferring of going short one asset, not both. Furthermore, each strategy is not perfect and if I lose one trade I can lose twice. I go short only one asset on which I am more confident with my strategy and odds.

I would like to learn how you monitor correlations in your trading. Please let me know.


Giancarlo Pagliaroli

Disclaimer: The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by me.

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