I have a 6 state Kalman Filter (Unscented).
When I use a diagonal matrix only for Q (i.e only the diagonal has covariances), I get a "smooth" plot of estimate against actual.
If I use the entire Q matrix (i.e include all covariances) I get an estimate that oscillates around actual wildly.
Is it incorrect to just use diagonal?
I am using 6 correlated Equity Stocks Price timeseries. In constructing the covariance matrix I use the difference between consecutive prices. I do NOT log the data.