A Dog on a Leash? (Part 1)
The Heating Oil and Natural Gas prices are pre-loaded in DataFrames HO
and NG
. First, plot both price series, which look like random walks. Then plot the difference between the two series, which should look more like a mean reverting series (to put the two series in the same units, we multiply the heating oil prices, in $/gallon, by 7.25, which converts it to $/millionBTU, which is the same units as Natural Gas).
The data for continuous futures (each contract has to be spliced together in a continuous series as contracts expire) was obtained from Quandl.
This exercise is part of the course
Time Series Analysis in Python
Exercise instructions
- Plot Heating Oil,
HO
, and Natural Gas,NG
, on the same subplot- Make sure you multiply the
HO
price by7.25
to match the units ofNG
- Make sure you multiply the
- Plot the spread on a second subplot
- The spread will be
7.25*HO - NG
- The spread will be
Hands-on interactive exercise
Have a go at this exercise by completing this sample code.
# Plot the prices separately
plt.subplot(2,1,1)
plt.plot(7.25*___, label='Heating Oil')
plt.plot(___, label='Natural Gas')
plt.legend(loc='best', fontsize='small')
# Plot the spread
plt.subplot(2,1,2)
plt.plot(___*HO-___, label='Spread')
plt.legend(loc='best', fontsize='small')
plt.axhline(y=0, linestyle='--', color='k')
plt.show()