I would go farther than just stationarity and include normality, and linearity in the relation, three suppositions for the correlation coefficient that are rarely examined. 

Robert Wayne Samohyl, Ph.D. 
www.qualimetria.ufsc.br
fones: 
55-48-3721-7001 University 
55-48-9608-5056 celular     


--- Em ter, 22/7/08, markleeds@verizon.net <markleeds@verizon.net> escreveu:
De: markleeds@verizon.net <markleeds@verizon.net>
Assunto: Re: [R-SIG-Finance] Correlation on Tick Data
Para: "Matthieu Stigler" <Matthieu.Stigler@gmail.com>
Cc: r-sig-finance@stat.math.ethz.ch
Data: Terça-feira, 22 de Julho de 2008, 12:38

just to elaborate a bit more on what matt said.

you need to make sure you time series are stationary before you 
correlate them.  usually one does this by using a unit root test but, in 
your case, since you are dealing with currencies, as long as you are 
dealing with the returns streamsand not the prices themselves, there's 
really no need to use the unit root test.  returns should be stationary 
( in general ).   if you're dealing with prices, then correlations
don't 
make sense because prices aren't ( in general ),
or atleast i've never seen prices that were.



On Tue, Jul 22, 2008 at 10:14 AM, Matthieu Stigler wrote:

> Hello
>
> If ES and YM are time series, you maybe should first test for 
> auto-correlation of the series. High auto-correlated series can lead 
> to the phenomen called as spurious regression, and then the 
> correlation coefficient is "too high".
>
> Hope this helps
>
> Mat
>
> Neil Gupta a écrit :
>> Hello R users.
>>
>> I was using R to calculate correlation of midquote returns on ES and 
>> YM. ES
>> and YM are highly correlated at close to .97. However when I run the
>> correlation on the MQ returns the correlation is close to 0. Should I 
>> be
>> expecting this or am I doing something wrong? Others have told me 
>> this
>> should happen, but I do not understand why. If anyone can please 
>> explain I
>> would really appreciate.
>>
>> Many Thanks,
>> Neil
>>
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>>
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