Rescaled Range Analysis
Categories: Metrics
Originally, the rescaled range analysis was created by a hydrologist to predict the flooding of the Nile river. When will it flood, by how much, and when? How fast will those changes happen, and when? This is what rescaled range analysis, a statistical technique, can do.
It’s no wonder then that investors have picked up on it. Rescaled range analysis is a statistical tool investors can use to try to spot and time trends and cycles in stock and bond markets. This gives investors the chance to make money on the inefficiencies of the market.
Calculating the rescaled range for a time series is not for newbs. It has many steps, having to do with means and deviations from the mean. The largest deviations from the means get created in their own series (range series R), which is divided by the standard deviation of the series.
This “largest deviation” part is what could potentially help investors spot under-and/or-overvalued assets. The more any stock or bond deviates from the mean—weighted by the standard deviation—the more it’ll stick out to investors. Just go with the flow of the Nile...and the market...with the rescale range analysis.
