Histograms

The histograms are a useful tool to determine when a market price is statistically stretched, and therefore more likely to revert towards the mean. It can indicate useful contrarian market signals but the distribution should have a normal, or bell shape, so that statistical inferences have validity.

NZD /USD

AUD / USD

NZD / AUD

NZD / EUR

NZD / JPY

NZD / GBP

NZ 3 Month Bank Bill

NZ 2 Year Swap Rate

NZ 5 Year Swap Rate

NZ 10 Year Swap Rate

 

Taking an example to illustrate a practical application, we examine the chart for the NZD/USD exchange rate. It shows the percentage of trading days spent in each price range since March 1985. The distribution is clearly bell shaped. It shows that most of the time, the exchange rate is between 0.51 and 0.72. It is rarely above 0.80. That implies that if the current exchange rate is above 0.80, it is statistically unlikely to remain at that rate for long, and should eventually revert to the 0.51-0.72 area. A company wishing to hedge its future import payments may use this information to always establish short-NZD/USD hedges above 0.80.