Long/Short Methodologies: Absolute and Relative
In this chapter, we will be comparing methodologies, with a particular focus on absolute versus relative series. Absolute series are the Open High Low Close (OHLC) prices you can see on any website or platform. They often come either adjusted for dividends, stock splits, and other corporate actions. Relative series are the above absolute series divided by the closing price of the benchmark, adjusted for currency.
We hope to demonstrate the weaknesses of the absolute method, and strengths of the relative weakness method, which will define our methodology for the rest of the book. We will cover the following topics on the way:
- Importing libraries
- Long/Short 1.0: The absolute method
- Long/Short 2.0: The relative weakness method
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