Wednesday, February 2, 2011

Kth Nearest Neighbor Algorithmic Predictions

So I noticed that Adaptive Trading Systems claimed to have achieved a fairly nice looking equity curve forecasting S&P500 Futures via KNN (Kth Nearest Neighbor) with the below inputs,

S&P500 Futures
S&P500 Index
Russel 2000 Index
OEX Put/Call Ratio
Fundamentally, these variables look at sentiment, futures basis, and relative performance, and are probably the main causes for this strategy's success.

Applying KNN

Here's a simple guide to implementing KNN in Excel. There're also a number of Matlab packages available.

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