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I've been following an asset wherein a "R-squared predictive forecast (close, 14)" is posted online each day. On some days, this figure is extremely high, like .92.

  1. Exactly what is the significance of the "14?" Does it refer to the past 14 days? The next 14 days? Something else?

  2. How do I interpret the R-squared predictive forecast? For example, does it mean that 92% of the variance in the next day's closing price can be explained by the current day's change between closing and opening values? Or maybe it means that the change between the next day's closing and opening values can be explained by the change between the current day's closing and opening values?

  3. Also, how do we account for direction (price going up versus going down)? Let's look at an example: Let's say the current day's R-squared predictive forecast (close, 14) is .80. Couldn't this value of.8 describe a scenario wherein the current day's open was \$20 and the close was \$19 (a price decrease) as well as a scenario wherein the current day's open was $20 and the close was about \$21 (a price increase)?

Thank you!

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1 Answer 1

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Welcome to the forum.

  1. Sounds more like the past 14 days are used in calibrating a model to obtain the R^2 value.

  2. I don't think the R^2 ever refers to the next day. The definition of R^2 is the proportion of variance in the dependent variable that is explainable by the independent variable for the set of observed data that is used to calibrate the model. For example, this could be the historical time series used in calibrating a linear regression model.

  3. Not sure what the model to obtain this R^2 predictive forecast looks like but usually the returns instead of the price is used in the regression.

Maybe you can provide more details or even share the link to the time series you are observing?

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  • $\begingroup$ Thanks, KaiSqDist. The asset is CCi30, a crypto index. It boasts a r-squared of about.70 with Bitcoin. But what is confusing me is the r-squared forecast (14, close), which you can see under the indicators, which can be found on the toolbar on $\endgroup$
    – Chris
    Commented Apr 16 at 17:17
  • $\begingroup$ (continued)...top of the interactive graph. Here is the address: cci30.com. The r squared forecast is whats confusing me. I get the .70 correlation with Bitcoin, but what is the R-squared FORECAST forecasting? $\endgroup$
    – Chris
    Commented Apr 16 at 17:33
  • $\begingroup$ I saw a linear regression R2 (close, 14) and a linear regression forecast (close, 14), but I didn't see anything with a R-squared forecast. Is one of the 2 the thing you are referring to? $\endgroup$
    – KaiSqDist
    Commented Apr 16 at 18:25
  • $\begingroup$ Yes, apologies, the linear regression forecast. Are they using the previous 14 days of index values to forecast or predict the next day's index value? And how do we know how strong or statistically significant the prediction model is? I emailed them yesterday, but havent heard back yet. Any insights? $\endgroup$
    – Chris
    Commented Apr 16 at 19:45
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    $\begingroup$ "It boasts a r-squared of about .70 with Bitcoin." That's what's called a contemporaneous relationship, the movement in Bitcoin in a future period (14 days or whatever) is highly correlated with the movement in this asset during the same time period. It is not a predictive relationship because we don't know the movement in Bitcoin in the future (it is not in the "current information set") so we cannot use it to predict the future movement in the asset. $\endgroup$
    – nbbo2
    Commented Apr 17 at 16:20

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