While it is true that past performance does not indicate the future, the only reliable information we have is about the past. A few important things make a difference between unbiased trading-system testing and self-delusion. Here I summarize my current understanding.

There is quite a shortage of good historical LIBOR interest rates data charts with a selection of currencies and maturities on the net. ForexAutomaton.com has a new section for just that: find historical LIBOR charts sorted by currency, loan duration and year on our site. These are essentially graphical "dumps" of our SQL database, based on the official BBA LIBOR archive. Use the Filter feature of the list to find the data you need.

This article begins a series of analysis reports investigating a degree of predictability in the LIBOR rates, a popular capital cost indicator. The analysis is based on historical LIBOR interest rate data released by the British Bankers Association. I continue with the same technique proved useful in the predictability analysis of forex exchange rates, as our interest in the interest rates in general is in part provoked by the results of the latter analysis, namely:

• sometimes, one forex exchage rate can "show the way" to a number of others, or in other words, foretell (in a probabilistic or statistical sense) their movement.
• when that happens, it is usually the exchange rate with a large interest rate differential showing the way to the ones with lower interest rate differentials.

Obviously, when exploring these "loopholes" or market inefficiencies for wealth generation, an algorithmic trader or a forex trading system (an automated decision making algorithm such as the one being built here on Forex Automaton™ site) must be mindful of the picture of LIBOR rates and its evolution, albeit in a somewhat different context than a long-term money manager. Being able to predict events, even in a weak statistical sense, is even better than merely following. Besides being useful via their implications for forex forecasting, LIBORs form an underlying indicator for derivatives of their own. LIBOR futures contracts and options on such contracts are traded on the CME. How does the predictability of LIBORs compare with that of currencies? Which one, LIBOR or forex, is more attractive to trade? Answering these questions, or providing a technical analysis framework to approach the answers, while leaving the fundamentals and event-driven trends aside, this series of articles about correlation features in LIBORs will serve as a useful compliment to our set of forex correlation analysis notes. I start this new series of articles with the all-important US Dollar LIBOR.

Among the other LIBOR rates, the Danish Krone LIBOR is remarkable for its positive autocorrelations, peculiar and very strongly pronounced short-range pattern of the overnight interest rate, and the weakness of the correlation between different duration terms. Like the previous LIBOR predictability overviews, this document begins with historical LIBOR charts for the currency, continues with volatility analysis, and culminates with autocorrelations and correlations of logarithmic returns for various DKK LIBOR terms. As with many other currencies, the predictable patterns in DKK LIBOR evolve with loan duration term from short-range but strong and regular oscillation in the overnight through smooth waves in 3-month and into relative featurelessness of the 12-month LIBOR. Motivation for publishing this type of study on a forex trading system site has been outlined in the USD LIBOR analysis. Here I can only add that for a student of financial correlations, LIBOR is a nice real-life intuition-building tool, for the correlations are so strong you can learn to identidy features in the charts with features in the correlations visually.

The intermarket correlation between Euro/ Swiss Franc and US Dollar/Swiss Franc has a narrow positive peak at the zero time lag whose internal structure can not be resolved on the hour time scale -- simply put, these currencies are positively with fast enough response to one another, and their combination offers no visible benefit for forecasting.

This is a follow-up report on the broad and somewhat asymmetric (with a tendency for CHF/USD to follow EUR/USD, at least during European trading) correlation between EUR/USD and USD/CHF. To those who are new to this site: the blog focuses on applying quantitative analysis to forex in search for significant patterns which can be utilized for trading short range, the minimal time scale being one hour. The strongly negatively correlated pair, EUR/USD and USD/CHF are often used as a classic example when discussing pair trading and hedging. Typically people discuss the so-called instanteneous, or zero time-lag correlation. No public discussion of the behaviour of the correlation for non-zero time lags -- a subject of interest to those willing to forecast the currency moves or create a forex trading system -- is known to me, other than of course what can be found on this site. In this report I focus on European trading hours (1am to 1pm New York time), extend the period of observation up to the fourth quarter of 2008 and analyze the time stability of the delayed correlations between EUR/USD and USD/CHF.

Like the previous LIBOR predictability overviews, this document begins with historical LIBOR charts for the Canadian Dollar, continues with volatility analysis, and culminates with autocorrelations and correlations of logarithmic returns for various CAD LIBOR terms. 1-week LIBOR shows wave-like correlation pattern with a period of about 30 days on top of a positive autocorrelation. As the loan duration gets longer, the wave disappers and a more uniform positive autocorrelation emerges for the range of time lags of up to 70 days. That gets reduced to a 2-3 days wide peak around zero time lag for 12-month LIBOR. Cross-correlations between different LIBOR terms show srong predictability of the shorter range LIBOR on the basis of longer range. Motivation for this type of study has been outlined in the USD LIBOR analysis.