The award-winning NinjaTrader platform includes 100+ indicators as well as multiple chart types and styles to accommodate all trading styles and analysis approaches.
In our continued effort to provide FREE advanced charting tools for analysis of futures, stocks, forex and cryptocurrencies, a new Correlation indicator was recently added to NinjaTrader 8. This new tool provides a quick & clear visualization of correlated market activity for users.
What is Correlation?
Correlation is a statistical measure of how closely two financial securities are moving in relation to one another. This calculation is used by market analysts to help predict where a market is headed.
- Positive correlation means two securities are moving in sync. Values close to +1 indicate positive correlation.
- Negative correlation indicates two securities are moving in opposite directions. Values close to -1 indicate negative correlation.
- No correlation implies there is no relationship. A correlation coefficient of exactly 0 would indicate that there is no association between the two financial instruments.
Examples of Correlation
The Correlation indicator plots as a single line in a panel below the price bars, as seen in the image directly above. In the examples below, the Correlation indicator is the single yellow line in the lower panel of each chart image and additional drawing objects have been added to highlight areas of the chart.
- Positive Correlation: In the chart below, several days of positive correlation can be detected between Apple (AAPL), when compared with E-mini Nasdaq futures (NQ). The Correlation indicator can be seen in the lower panel, displayed as a yellow line. The green horizontal line in the lower panel (drawn manually with the Horizontal Line drawing tool) indicates a correlation value of +1. The green region in the upper panel (drawn manually with the Region Highlight X drawing tool) highlights when correlation was the most positive.
- Negative Correlation: The chart below shows a negative correlation period between Crude Oil futures (CL) and Natural Gas futures (NG) on a 5-minute timeframe. In the lower panel with the Correlation indicator, the red horizontal line (drawn manually with the Horizontal Line drawing tool) indicates a correlation coefficient of -1. The red region in the upper panel (drawn manually with the Region Highlight X drawing tool) highlights when correlation was the most negative.
- No Correlation: The comparison of Disney (DIS) and Nvidia (NVDA) shows a period of almost no correlation in the chart below. The blue horizontal line in the lower panel (drawn manually with the Horizontal Line drawing tool) designates a correlation value of 0. The light blue region in the upper panel (drawn manually with the Region Highlight X drawing tool) highlights when correlation was the lowest.
Please note: Correlation between two or more markets does not imply causation and markets are inherently unpredictable. Traders should always employ risk mitigation techniques when participating in live markets.