Recent content by ballyb11

I want to do a spread between the Russell mini and the SP mini. I need to backtest tick data. Anyone know if the ICE and the CME's timestamps are exactly synced? ie, hh:mm:ss.xxx ice is the same time as hh:mm:ss.xxx cme Obviously I want precision.

I stay away from them.

Point well taken. I guess I used the term 'pairs trade" too loosely. I don't do long term trading. These trades are for several days, 7 - 10 at the most. And I'm trading commodities. And I don't like pain, so I'm trying to minimize the volatility in a trade. Equal $ in gold and silver doesn't...

Essentially you start w/ equal $, and adjust one by the others beta.

"What if" one is relatively stable and the second is insanely volatile? That's an extreme, but there is a continuum of different volatilities and in a pairs trade I like to try to equalize the risk.

I want to thank you both - Amit & Rhody Trader. You've been a big help.

OK, that makes sense. My stats proficiency is mediocre at best. I guess implied in your answer is that if I calculated the true betas using a regression model, they would be inverses?

I used Covariance of (x, y) / Variance of y.

Thanks, but you pointed out my confusion better than I could describe. You say "In other words, the beta of the S&P relative to GOOG is about 0.7143" (the inverse). That's how I look at it. But IF the statistical calculation of the beta of GOOG is 1.4 vs. the S&P, the statistical calculation...

You are right. I meant to write By = 1 / Bx which is the same as your By x Bx = 1. It's the inverse. Something in this approach is wrong. Not sure what. Statistically, they are not inverses. But logically they should be? Again, start with a trade size TSx and adjust by the other's beta to get...

No. they are =. And I guess if that's true, it implies Variance of y = 1 / Variance of x, which I understand doesn't hold. But what's wrong with the arguement below which is where my thought process is fixed. 1. TSx (Trade Size of x) = TSy / Bx (Beta of x) and 2. TSy = TSx / By...

I am using betas to adjust trade sizes in a Pairs trade (stocks x and y). So beta of x in relation to y is the volatility of x compared to y. Mathematically it’s Covariance of (x, y) / Variance of y. If we happened to look at the reverse - the beta of y in relation to x is the volatility of y...

I have a system that gives buys and sells for individual stocks. I hedge with SPY's and QQQQs. These are short term trades - 2 to 10 days. I need to introduce beta / volatility of the stocks into my system. Betas on Yahoo / Google are long term values and don't accurately reflect recent price...