Pipeline for finding closely correlated stocks?

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Pipeline for finding closely correlated stocks?

edited

Getting Started Mean Reversion Pipeline

Hi,

I am looking to build a pipeline to select pairs of closely correlated stocks from the general stock market for a paired mean-reversion algorithm I have been working on, yet none of my research has found anything to assist me with this problem. Please note that I am very much a beginner, but have some experience with python prior to using Quantopian. Please answer ASAP.

Thanks,

Earlybird

2 responses

You could run a correlation matrix fairly easily on a set of .csv files using pandas: https://stackoverflow.com/questions/29432629/plot-correlation-matrix-using-pandas

You can download the .csv files from yahoo finance fairly easily and then using the correlation matrix function you could rank them by how closely they are correlated.

One thing I failed to mention, it is important to use the log returns and not absolute returns when doing the correlation study.

see:
https://www.quantopian.com/posts/correlation-between-prices-or-returns
or
https://quantivity.wordpress.com/2011/02/21/why-log-returns/

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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian.

In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.