Long and short 4

Hi

Can anyone help with an idea for a trading system / technical analysis?

I have 8 stocks that are very correlated and I wish to trade a basket of long 4 short 4 to mitigate directional Market risk.

Any ideas on which indicators or what methods to use, both for trade entry and turning points in the strengths?

Thanks

Rahul

But if your objective is to mitigate directional risk by taking opposing positions in correlated stocks, and if this strategy worked 100%, wouldn't that mean you would break even? By starting out to mitigate risk aren't you ending up by mitigating return?

On the other hand, if your aim is to short the higher priced and buy the lower priced, seeking profit through their return to a mean, this does not adequately mitigate directional risk.

Exactly, in the easiest terms which stocks will outperform the s&p500, ie long 10k googlebshort 10k s&p500. As the view would be no matter if the Market goes up or down google will outperform

rahul100 said:

Exactly, in the easiest terms which stocks will outperform the s&p500, ie long 10k googlebshort 10k s&p500. As the view would be no matter if the Market goes up or down google will outperform

Click to expand...

I'm sorry, clearly you're right and I'm wrong.