Correlation between two stocks?

[sjx]

How do I work out the correlation between two stocks?

And if there are any genius's out there.. can somebody explain to me how the 'time-computed' method is calculated?

Any help.. or any information on this would be greatly appreciated..

 

[beamstas]

Purely a guess, but i'd say it would work on the % difference of the % moves of each stock each day.

For example if stock A went from $30 to $33 and stock B went from $1 to $1.10 they'd have a strong correlatoin. Obviously you need to test this over longer periods though!

 

[Pairs Trader]

http://en.wikipedia.org/wiki/Correlation
http://en.wikipedia.org/wiki/Cointegration

 

[sjx]

thanks for the links. My understanding of how this works has been widened.

 

[prawn_86]

If you have the data set its just a simple function in excel

 

[sjx]

Which Excel function is it?


EDIT: I've found it, thanks for making me aware of that - makes life quite easy