Anirban Ghatak,

shown graphically below. The cut off correlation value is 0.78. For further
analysis the pairs with correlation above 0.78 are only considered as they follow
conventional risk-return relationship. 49 such pairs are found in this segment.

For these 49 pairs individual sample 2-tail t-test is done for each
trading signal to check the statistical significance of the obtained returns. The
test result includes mean return for each signal, standard deviation of each signal
set, and t statistics. The test result is shown below:

One-Sample Statistics
Trade Signal N Mean Std. Deviation Std. Error Mean
0.7/0.5 49 7.657 15.660 2.237
0.7/0.4 49 8.798 25.224 3.603
0.6/0.4 49 4.247 6.465 0.924
0.6/0.3 49 3.423 2.907 0.415
0.5/0.3 49 2.378 1.878 0.268
0.5/0.2 49 2.460 1.783 0.255
0.4/0.2 49 1.961 2.071 0.296
0.4/0.1 49 2.369 3.464 0.495
0.3/0.1 49 1.410 1.163 0.166
Table .4: mean stat for natural pairs

One-Sample Test
Test Value = 0
Trade T Df Sig. Mean 95% Confidence
Signal Difference Interval of the
(2-tailed)
Difference

Lower Upper
0.7/0.5 3.423 48 0.001 7.657 3.159 12.155
0.7/0.4 2.442 48 0.018 8.798 1.553 16.044
0.6/0.4 4.598 48 0.000 4.247 2.390 6.104
0.6/0.3 8.243 48 0.000 3.423 2.588 4.258

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