Using Market Indicators to Eliminate Local Trends for Financial Time Series Cross-Correlation Analysis
by Zohreh Alamatian, Majid Vafaei Jahan, and Amin Milani Fard
Published onJun 08, 2021
Using Market Indicators to Eliminate Local Trends for Financial Time Series Cross-Correlation Analysis
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Abstract
Multifractal detrended cross-correlation analysis (MFDCCA) is largely used to analyze non-stationary financial time series. Existing methods for such analysis utilize the time series itself as the detrending function with a polynomial. We propose a technique for a more accurate removal of local trends, called indicator-based MFDCCA (IMFD- CCA), which leverages market technical indicators to better determine correlations between financial time series. We evaluated our method on pair trading in the Foreign Exchange Market (Forex) and our results show that the proposed IMFDCCA compared to the MFDCCA reduces the RMSE for the Hurst exponent estimation by 30%.
Creative Commons Attribution 4.0 International License (CC-BY 4.0)