I have two cross and an account in EUR:
- EUR/USD
- GBP/USD
I would like to do a balanced linear regression using R. With "balanced" I mean that I would like to normalize it by calculating the difference in pips from the previous day and the current, and then multiply by the respective (middle) pip value.
I do a simple example:
The series are:
EUR/USD 1.3000 1.3050 1.3060
GBP/USD 1.6000 1.6050 1.6060
The differences are:
EUR/USD
- 50 pips (1.3000 - 1.3050)
- 10 pips (1.3050 - 1.3060)
GBP/USD
- 50 pips (1.6000 - 1.6050)
- 10 pips (1.6050 - 1.6060)
Now, calculate (the values are inventend) the middle pip values:
(remember that account currency in EUR)
EUR/USD
- 13 € pip value (at middle pip: 1.3025)
- 13.5 € pip value (at middle pip: 1.3055)
GBP/USD
- 9 € pip value (at middle pip: 1.6025)
- 8.5 € pip value (at middle pip: 1.6055)
Now the normalized series that I studied should be:
EUR/USD
- 50(pip difference) * 13€ = 650
- 10(pip difference) * 13.5€ = 135
GBP/USD
- 50(pip difference) * 9€ = 450
- 10(pip difference) * 8.5€ = 85
The normalized series are:
EUR/ USD: 650, 135
GBP/USD: 450, 85
What do you think of this type of procedure? (then I will use those series in the linear regression)