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Recently, I started reading Zuckerman's biography of Jim Simons - "The Man Who Solved the Market". There is an interesting para on page 110 - "When you flip a coin, you have a 25% chance of getting heads twice in a row, but there in correlation b/w one flip to the next. By contrast,Straus, Laufer and Berlekamp determine that the correlation of price moves in deutche marks b/w any two consecutive time periods was as much as 20%, meaning that the sequence repeated more than half the time" - This last line is throwing me off....I've always used autocorrelation, or correlation as is done in traditional statistics courses; just the degree of association b/w two data series at a point in time, or over time etc. I've never associated either of the two metrics to a frequency of an event occurring. I've no idea how the author connects the 20% autocorrelation to the event occurring more than half the time....could anyone elaborate and point me in the right direction? Thanks!

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I recently had trouble with a similar concept and I managed to develop a proof that related probability of successive occurrence with autocorrelation. Interpreting Autocorrelation as probability. Let me know if it helps.

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  • $\begingroup$ Thanks! I'll check and get back :) $\endgroup$ – Chet Apr 20 at 21:51

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