Tuesday, December 4, 2012

Excel data analysis 4.2 (Overnight Gap)

In this post we look at the change in price stats for overnight gaps, and its correlation to the sequential open to close price moves.

Historical data
I used IYR Open and Closing Prices for this example, starting from the split at 6/9/05. Daily prices are available at yahoo finance, see this post for data sorting. Once we have the data sorted, logged returns off Gaps "Gap" and sequential open to close price change "dOC" can be derived.

Correlation between "Gap" and "dOC" is done with the correl() function. Here I do a 20day moving correlation.

We end up with these stats

General analysis
Interestingly we can see that for the sample period, the average gap move was down, while the intraday moves had a net positive movement. With correlation near 0, it's unlikely that the overnight gap move offers any valuable edge for trading in the following session.

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