{"product_id":"v11-c05-combini-pdf","title":"V.11:5 (220-223): Combining Negatively Correlated Forecasts by Denis Ridley, Ph.D.","description":"Combining Negatively Correlated Forecasts\nby Denis Ridley, Ph.D.\u003cbr\u003e\u003cbr\u003eWill combining two negatively correlated forecasts of price data produce a more accurate forecast?\nSTOCKS \u0026amp; COMMODITIES contributor Denis Ridley says yes. It's called \"antithetic forecasting\", as he\nexplains here.\u003cbr\u003e\u003cbr\u003eTraders and investors may find that forecasting models are useful for estimating future values of a\nfinancial time series. However, serial correlation creates a biased forecast, and that bias in turn is\ncorrelated with the forecast origin. Antitheticor contradictory errorforecasting creates a new but\nreverse correlated forecast and combines it with the original forecast, thereby canceling out the errors.\nThis article will illustrate an application to the monthly closings of the Dow Jones Industrial Average\n(DJIA) in which the forecast mean square error was reduced by approximately 50% .\u003cbr\u003e\u003cbr\u003eAntithetic forecasting falls into the category of methods referred to as combining forecasts. The antithetic\nforecasting method can be applied when the historical data is autocorrelatedthat is, when the data is\ncorrelated with itself in previous time periods.\u003cbr\u003e\u003cbr\u003eAutocorrelation is the basis for assuming that a historical series contains a pattern. If that is the case, then\nthere should be a forecasting model that can emulate that pattern, thereby generating the desired\nforecasts. At the same time, we are reminded (see J.F. Elder and M.T. Finn's work in the reference\nsection) that the financial markets are normally difficult to forecast, so every effort to reduce forecasting\nerror becomes important. Statistical models assume that historical data is a collection of independent\nobservations.","brand":"store-traders-com","offers":[{"title":"Default Title","offer_id":52133818466673,"sku":"\\V11\\C05\\Combini.PDF","price":3.95,"currency_code":"USD","in_stock":true}],"thumbnail_url":"\/\/cdn.shopify.com\/s\/files\/1\/0900\/3843\/6209\/files\/unnamed_476fc05a-919e-4f5a-a42e-350ef055d705.jpg?v=1739653285","url":"https:\/\/shop.traders.com\/products\/v11-c05-combini-pdf","provider":"Stocks \u0026 Commodities","version":"1.0","type":"link"}