Intermarket Correlation and Neural Network Software

INTERMARKET CORRELATION 

Two markets that normally trend in the same direction, such as bonds and stocks, are positively correlated. Markets that trend in opposite directions, like bonds and commodities, are negatively correlated. Charting software allows you to measure the degree of correlation between different markets. A high positive reading suggests a strong positive correlation. A high negative reading suggests a strong negative correlation. A reading near zero suggests little or no correlation between two markets. By measuring the degree of correlation, the trader is able to establish how much emphasis to place on a particular inter-market relationship. More weight should be placed on those with higher correlations, and less weight on those closer to zero.

One major problem with the study of inter-market relationships is that there are so many of them-and they're all interacting at the same time. That's where neural networks come into play. Neural networks provide a more quantitative framework for identifying and tracking the complex relationships that exist among the financial markets. Louis Mendelsohn, president of Market Technologies Corporation  was the first person to develop inter-market analysis software in the financial industry during the 1980s. Mendelsohn is the leading pioneer in the application of microcomputer software and neural networks to inter-market analysis. His Vantage Point software, first introduced in 1991, uses inter-market principles to trade interest rate markets, stock indexes, currency markets, and energy futures. Vantage Point uses neural network technology to detect the hidden patterns and correlations that exist between related markets.