One very wise (and famous) hedge fund manager told us that the first charts anyone should ever look at are scatter diagrams. Although we ourselves generally look at something else first, we agree with the importance he places on scatter diagrams and have provided that functionality.
Let’s say that you are building a strategy that involves using a bond investment as an alternative to stocks. Trading individual bonds can be problematic to both research and trade, so you make the “bond” investment an Exchange Traded Fund (“ETF”). Unfortunately both IEF (the 7-10-year Treasury ETF) and TLT (the 20+-year Treasury ETF) commenced trading in 2002, which does not give you much history.
There is, however, an extremely good index created by Dr. Joseph Benning of the Chicago Board of Trade, called the Dow Jones CBT Index (Bloomberg symbol: DJCBTI) that models the 7-10 year Treasury behavior. And DJCBTI is available back to 1988. So, if we can trust the relationship between DJCBTI and IEF, we can test our strategy back to 1988. Let’s see if we can trust it.
This request will take the 5-day rate of change of both DJCBTI and the close of IEF for only the dates which they have in common. If you plot them as lines, you will see their relationship over time.
Now click on 
, and 
. You will get the following template:
Select the number of panes you want and then 
. You will then be presented with a template with additional choices:
FDC selects the data in Column 1 of the dataset as the default for the Horizontal axis, but you may change that as you wish.
You should then enter your comparison data (by Column number) as you wish. Here we have entered Column 2 in the Dotted Line edit window:
Then click 
, and you will be presented with:
On the MENU line you will see 
. Click on that and you get:
You should then SELECT the data. You can do that in a variety of ways. First, you can just click on the data in the graph with your mouse. Alternatively, you can go to 
, or to the magnifying glass icon 
and 
. What you then see is the scatter diagram with the data selected:
Next, further select that portion of the whole data that you wish to analyze. You do this by clicking on the Selection Tool 
. With your mouse click on the picture, drag the mouse across the data you wish to analyze and click again. Following is an example of the selected data:
Once the data is further selected, you will find the 
button in the upper right corner of the window. Click it and select the type of fitting that you want to do. Here we have selected a linear fit:
Then 
. You will get the scatter plot with your line displayed. If that’s what you want, then click on the Selection Tool again, and 
.
By Retaining New Data, you will add a third column to your dataset, such that temp1 now has 3 columns. That third column can be further analyzed as you wish. Should you click on the Note tab 
you will get the parameters of the linear fit, specifically the Y-intercept and the slope: 
Should you have chosen a parabolic fit, the formula for which would be: a + bx + cx2, you would get the values for a, b and c in that such in the Note.
What this exercise has done is to enable you to see the relationship of the two values over price. This can be significantly different than their relationship over time.