I was plotting (standardized) return data with qqplot()
in MATLAB against the theoretical quantiles of a normal distribution. However, the line in the QQ-Plot does not have a 45° angle but is rotated a little.
Maybe I misunderstand the concept of a QQ plot but isn't it supposed to be exactly a 45° line?
I put the plot to illustrate the issue.
Best Answer
Should it be a 45 degree line? It depends!
A QQ plot is the parametric curve defined by:
\begin{align*} x &= F^{-1}(p)\\ y &= G^{-1}(p) \end{align*}
for $p \in [0, 1]$. Where $F^{-1}$ and $G^{-1}$ are inverse CDF functions.
If $F = G$ then $x(p)=y(p)$ and it would be on a 45 degree line.
Another case...
That is $G$ is the inverse CDF for a normally distributed random variable with mean $\mu$ and standard deviation $\sigma$ while $F$ is the inverse CDF for a standard normal variable (i.e. mean 0, standard deviation 1). Then we see:
$$y(p) = \sigma \Phi^{-1}(p) + \mu = \sigma x(p) + \mu$$
That is, the plot is a line $y = \sigma x + \mu$
What's going on in your case?
From the Matlab documentation for
qqplot
So even if you standardized your data, the red line MATLAB plots wouldn't be a 45 degree line if the 1st and 3rd quartiles didn't match the normal distribution.