Worksheet – Case #9 – Using Correlation to determine the best lag

Finding Data

In this case, we will reuse the document from Case #3 which can be downloaded here. As such, all data needed for this exercise can be found in the document.

Document preparation

Reverting adjustments

As we are reusing a document, some adjustments need to be reverted from the earlier case.

  • Select “Time chart” in the tree
  • Open the chart layout and change Industrial production from “Area” to “Line”



You need to use the Correlation analysis to determine the best lag correlation between the two series.

  • Select the Rate of Change analysis
  • Add a Correlation analysis

In this case we are interested in the correlation between the two series from the year 2000.

  • Input 2000 as the start of the “Calculation range” and leave the end value blank
  • Change the "Lag Range" from -12 to 12.
  • For the ISM PMI, in the “Correlate to” drop-down menu, choose Industrial production
  • Leave the “Correlate to” setting to None for the Industrial production

Visualizing the result

  • Select “Correlation” in the tree
  • Click on “Add” and pick Category chart

By looking at the Category chart, you can see that the best correlation is reached when the value of the x-axis is 4. This means that lagging the ISM PMI by 4 observations (or months in our case) gives the best correlation between the series.


Having found the optimal lag, you can now come back to the Time chart and insert a Lag analysis.

  • Select “Time chart” in the tree
  • Click on “Insert” and choose Lag

For ISM PMI, choose Lag as the “Method” and 4 obs as the “Base”


Time axis adjustment

As we are interested in the correlation beyond the year 2000:

  • Select the x-axis
  • On the “Presentation properties” tab set the display range to start at 2000

Highlighting a range of values

You can use some chart annotations to circle these values.

  • Go to the “Chart annotations” tab and select Observation label
  • On the ISM PMI graph line, click on the last observation
  • Select the annotation by clicking on the textbox containing date and value
  • In the “Presentation properties” tab, change the start of the range to -3
    • This will include the lagged observations in the range, indexed by: 0,1,2,3
  • Tick the “Custom style” text-box and in “Anchor appearance” change the style to Ellipse
  • Finally, change the background color of the annotation
    • Set the opacity to 50% or lower so that the line remains visible.

Changing the observation label text

To change the text of the observation label, simply double-click on the textbox and a customization window will appear.