Regarding correlation

[Nitin Bhatia]

Respected sir,
As u said that coreelation is very effective to find out the market direction from that variable which we consider with nifty closing price
But sir as per my knowledge correlation is supportive (either positive or negative)
When that variable move in a same direction
For eg if iv continuously decrease and market increases then we can see a strong negative correlation but if iv shows zig zag movements like increase then decrease and increase again then correlation is week
So dnt u think indirectly by finding correlation we standardize the things
While u always said that market m kuch bhi standard tarike se nahi chalta practical bilkul alag hota h n ivs will not always move in a same direction so long(if we consider 5 days data to practically 5 din lagatar badhegi to nahi kabhi decrease hogi kabhi increase)
Sir if i am wrong please correct me and give inputs please

[Nitin Bhatia]

I have one more question about correlation: I am observing charts and option chain of some nifty stocks every day. since last many days, I am recording the iv of both sides on EOD basis. now I have observed that both cal iv and put iv is increasing every day in most stocks (like tata motors). while its price is coming down, so correlation on both sides is strongly negative. what to do in such cases, take no trade, or wait for confirmation from other setups?

[Nitin Bhatia]

You cannot trade only based on Correlation Coefficient. You can take short position if option chain is bearish and correlation coefficient is negative then it reconfirm that you are taking right trade.

[Nitin Bhatia]

Dear shubham,
Your questioning is different, you have to do in your case some other statistical analysis also like premium decay and change in oi with iv movements and find smart money in that particular stock
But your question prove my points that if variable is in a direction and nifty/stock is in a different direction obviously correlation is perfect negative but aisa hota nahi h na ki wo variable lagatar ek hi direction m jaye aur nifty lagatar opposite direction m.
Sir your reply is very important in this

[Nitin Bhatia]

respected sir and frnds

mai correlation find out nhi kr pa rha hu bcoz mere excel me formula put up krne pe #div/0 result aa rha hai…
plz help

[Nitin Bhatia]

PALESHWAR BRO google excel mein try karke dekh lo ek bar

[Nitin Bhatia]

Thankyou Subham for your reply

But I also tried on Google Excel..I think I m doing wrong.
Can u share with me Excel sheet in which u find out correlation.

[Nitin Bhatia]

Dear Paleshwar,

Check your formulas again, this kind of error only comes when u divide a number by zero as much as i know.

[Nitin Bhatia]

Correlation Coefficient only tells how the two variables are moving currently and i find this info very useful. I agree that it can change.

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