> Price time series will usually have a positive drift and thus are

> non-stationary.

> As far as I know most methods of time series analysis deal with

> stationary series and if you want to analyze a non-stationary series,

> you should transform the series and obtain a stationary version of the

> raw data first.

> Return time series are usually (or at least assumed to be) stationary

> and thus your focus should lie on returns rather than prices..

>

> Hth

> Thomas

>

>

>

> Michael Jungle schrieb:

> > Thx but why? I want buy/short based on price correlations right? Not returns...

> >

> > On Saturday, February 20, 2010, Patrick Burns-2 [via R]

> > <

[hidden email]> wrote:

> >

> >> You want to use returns, not prices.

> >>

> >> Correlations with prices are spurious.

> >>

> >> (The extreme example is to think of

> >>

> >> a long set of series with inflation --

> >>

> >> all the price series will be positively

> >>

> >> correlated.)

> >>

> >>

> >>

> >> On 19/02/2010 23:15, Michael Jungle wrote:

> >>

> >>

> >>> One possibility is to do the cross-correlation.

> >>>

> >>> What series shall I apply cross-correlation to? Price or return series?

> >>>

> >>> If I do cross-correlation on two price series, and found some large

> >>>

> >>> correlation numbers,

> >>>

> >>> and then do cross-correlation on two return series, and found no significant

> >>>

> >>> numbers(almost zero),

> >>>

> >>> What does that mean?

> >>>

> >> --

> >>

> >> Patrick Burns

> >>

> >> [hidden email]Ã <

http://n4.nabble.com/user/SendEmail.jtp?type=node&node=1562668&i=0>

> >>

> >>

http://www.burns-stat.com> >>

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> >>

> >>

> >>

> >>

> >> View message @

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> >>

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> >>

> >>

> >>

> >

> >

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