V. 21:10 (42-49): Serial Correlation Of One Rank by Norman J. Brown

V. 21:10 (42-49): Serial Correlation Of One Rank by Norman J. Brown
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Serial Correlation Of One Rank by Norman J. Brown

The one rank mutual fund switching technique is further enhanced using correlation.

In two earlier articles, I demonstrated that the “one rank” (OR) switching technique depends on a low-value (less than 63) switching rate (S/Y), which in turn implies a longer than random up/down day streak period (more than four days). Here, I will investigate the methodology further, exploring enhanced streak periods using a well-known statistical method called correlation, implemented using Pearson’s correlation coefficient, r (details are in the sidebar, “Calculating offset correlation, Osc1”).

Estimating the magnitude of the OR performance required some simple equations that were developed to calculate the net up days captured from the yearly fund days (252). The average yearly up-day return was essentially equal to the average yearly down-day return; thus, a simple difference of days sufficed to calculate the resulting buy and hold (BH) or OR return.

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