topic Confusion, why difference between two X Vars(highly correlated with Y) still highly correlated w. Y? in SAS Forecasting and Econometrics

Confusion, why difference between two X Vars(highly correlated with Y) still highly correlated w. Y?

hellohere — Wed, 20 Apr 2022 03:46:44 GMT

Timeseries X1 and X2 are both highly correlated with Y (Cov>90%), why the difference btw X1 and X2 are still highly

correlated with Y(COV~=90%)?

How to treat this to make a better prediciion?!

Re: Confusion, why difference between two X Vars(highly correlated with Y) still highly correlated w

hellohere — Wed, 20 Apr 2022 03:48:07 GMT

What does that imply?! Or just typical?!

Re: Confusion, why difference between two X Vars(highly correlated with Y) still highly correlated w

PaigeMiller — Wed, 20 Apr 2022 11:33:01 GMT

Please explain further the part in red ... difference of what?

“...why the difference btw X1 and X2 are still highly correlated with Y(COV~=90%)?”

Re: Confusion, why difference between two X Vars(highly correlated with Y) still highly correlated w

hellohere — Wed, 20 Apr 2022 11:35:02 GMT

New variable =X1-X2 still correlated with Y, why? Typical? Or abnormal?

Re: Confusion, why difference between two X Vars(highly correlated with Y) still highly correlated w

PaigeMiller — Wed, 20 Apr 2022 11:40:47 GMT

Can you show us the correlation matrix of X1, X2, (X1-X2) and Y

Re: Confusion, why difference between two X Vars(highly correlated with Y) still highly correlated w

hellohere — Wed, 20 Apr 2022 11:52:29 GMT

Y=h300 x1=ordvol_dif_gap4 x2=ordvol_dif_gap1 x1-x2=ordvol_dif_g14

hs300

1.00000

0.95534

<.0001

0.94302

<.0001

0.93251

<.0001

ordvol_dif_g14

0.95534

<.0001

1.00000

0.98923

<.0001

0.97906

<.0001

ordvol_dif_gap4

0.94302

<.0001

0.98923

<.0001

1.00000

0.99831

<.0001

ordvol_dif_gap1

0.93251

<.0001

0.97906

<.0001

0.99831

<.0001

1.00000

Re: Confusion, why difference between two X Vars(highly correlated with Y) still highly correlated w

PaigeMiller — Wed, 20 Apr 2022 12:20:26 GMT

I don't think there's anything unusual here, did you try plotting the data?

Re: Confusion, why difference between two X Vars(highly correlated with Y) still highly correlated w

Ksharp — Wed, 20 Apr 2022 12:27:06 GMT

That is normal. Make the second order difference and Check Corr ,if it still high , and make the third difference ,until it is not correlation.