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hellohere
Pyrite | Level 9

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?!

7 REPLIES 7
PaigeMiller
Diamond | Level 26

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%)?”

--
Paige Miller
hellohere
Pyrite | Level 9

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

PaigeMiller
Diamond | Level 26

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

--
Paige Miller
hellohere
Pyrite | Level 9
Spoiler
Y=h300 x1=ordvol_dif_gap4 x2=ordvol_dif_gap1 x1-x2=ordvol_dif_g14
Pearson Correlation Coefficients, N = 22999
Prob > |r| under H0: Rho=0
  hs300 ordvol_dif_g14 ordvol_dif_gap4 ordvol_dif_gap1
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
PaigeMiller
Diamond | Level 26

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

 

--
Paige Miller
Ksharp
Super User
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.

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