I'm pleased to introduce this script in honor of the new array functions introduced to PineScript version 4.0. This update is a long time coming and opens the door to amazing scripting possibilities!
Definition
Named after Charles Spearman and denoted by the Greek letter ‘ρ’ (rho), the Spearman rank correlation coefficient is the nonparametric version of the Pearson correlation coefficient. Use the Spearman rank correlation when you have two ranked variables, and you want to see whether the two variables covary. That is, as one variable increases/decreases, the other variable tends to increase/decrease respectively.
It is best used to discover if two variables (and in this first version of the indicator, two ticker symbols) increase and decrease together. There are advantages to using this version of correlation vs. the Pearson R.
Interpretation
The value oscillates between +1 and -1.
A value of +1 means the two variables are perfectly correlated, that is they are increasing and decreasing together in perfect harmony.
A value of -1 means the two variables exhibit a perfect negative correlation, that is they increase and decrease oppositely.
A value of zero means the two variables are not correlated at all (noise).
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Removed the 'lookahead = true' parameter from the security function, not needed.
Fixed logic of duplicates to be more straightforward.
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Fixed issue with hLines.
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Updated symbol input to input.symbol.
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Fixed -1 index out of bounds exception.
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Removed index out of bound corner cases.
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Added primary source option. The source input that is correlated to the selected symbol's closing price. By default the close of the chart's symbol is correlated against the close of the selected symbol below, however an alternate source can be used to correlated against the selected symbol, such as an indicator on the chart.
This publication is now featured in our Editors' Picks. In the name of all TradingView traders, thank you for your valuable contribution to the TradingView community, and congrats!
Thank you for this. This is very elegant coding. The only problem for me is that this implementation of the Spearman Rank Correlation does not work as a function. Pine Script is limited and does not yet allow the use of function within functions. So, the rank function and corr function prevent the adaptation of the script to serve as a function.
mortdiggiddy
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@pincopallino67, See the "Note" near the beginning of the code
jultopia
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Thanks for a very interesting indicator. Wondering do you have hints for helpful use cases for it?
Thanks,
Julian
gb50k
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Well done...the more non-parametrics the better!
Thanks for this contribution!
dgtrd
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thanks for sharing
I have a published study which implements Pearson correlation coefficient, where I attempted to discover correlation between two variables of the same instrument, such as Price(Close) and OBV. What would be you thoughts of such kind of usage?