Google for correlation.Hello,
I have a hobby interest in the stock market and have recently been doing some tests on different indicators. I have run into a problem however due to my very limited statistical background.
For example, one test I have run involves interest rates. I currently have two columns of data in Excel - one is the percent change in interest rate at different time periods, and the other is the stock market return going forward from that date, generally one month ahead. I want to determine (using Excel if possible) if there is a firm relationship between interest rate changes and future stock market returns and somehow quantify the strength of that relationship so that I can compare that relationship to others.
My hypothesis is that interest rate cuts tend to be followed by a rise in the stock market return, and interest rate rises tend to be followed by a decline in the return. I'm wondering what the best statistical method to use would be to determine if a trend truly exists that would indicate a relationship between interest rate changes and return? At the moment i'm really having trouble determining if my results are simply due to random noise or a more conclusive relationship. As you can probably tell, i'm a real newbie when it comes to statistics, so I would be very grateful for any help!
Then note that correlation does not imply causation.