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SharpCharts users can measure correlation at least two ways. First, chartists can compare two securities by plotting the price of one behind the price of the other. Second, chartists can use the Correlation Coefficient to quantify correlation. Positively correlated securities rise and fall together, while negatively correlated securities move in opposite directions. SharpCharts users can add another security to a chart by selecting “price” as an indicator, entering the security’s symbol as the parameter and positioning the security “behind price”. The resulting chart will show the price plots for two securities in the main chart window
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The chart above shows Spot Gold ($GOLD) and the US Dollar Index ($USD) over the last two years. $GOLD is the main security, while $USD was entered as the “price” indicator. Different colors were selected to compare and contrast. These two securities are negatively correlated for the most part. Notice how one tends to rise when the other falls, and visa versa. Also notice that the Correlation Coefficient ($GOLD,$USD) has spent most of its time in negative territory. Something rather unusual is happening now though. Notice that both gold and the Dollar have fallen over the last five weeks. This positive correlation is confirmed with a surge in the Correlation Coefficient, which hit its highest level since early 2011. You can read more on the Correlation Coefficient in our ChartSchool.
