A List of Stock Pairs above 90% Correlation

[barrychucks]

Hi guys, I just received this list and thought some of you might be interested. its a list of stock pairs traded on the NYSE, NASDQ & Amex exchanges with correlation above 90%

Does anybody trade any of these pairs? Is the higher the correlation the better the pair is too trade?

 

[stocktrader77]

Generally yes the higher the correlation the better the pair is too trade, however be careful with pairs above 99% correlation as the deviation from the mean is likely to be small and therefore very tight margin for profits after taking out commissions. il like pairs with correlation between 90-98%

 

[charlie_8]

hi, where did you get the list?

 

[barrychucks]

I received it when I downloaded a software demo from Pairtrade Finder

 

[Lee Shepherd]

I dont want to p1ss on anyone's fire here but how long have these pairs been correlated?

Also, what happens when they break correlation, how do you know, this is of course data from oct, how do we know its not working now even if they still seem correlated.

I've done a fair bit of work into correlated markets and have recently been studying indices pairs, however, these still have some pretty wild breaks in them. Some of those pairs are also from different market sectors, therefore, highly likely to break, good if your on the right side or looking in hindsight but then thats not what trading is about.

 

[stocktrader77]

I dont want to p1ss on anyone's fire here but how long have these pairs been correlated?

Also, what happens when they break correlation, how do you know, this is of course data from oct, how do we know its not working now even if they still seem correlated.

I've done a fair bit of work into correlated markets and have recently been studying indices pairs, however, these still have some pretty wild breaks in them. Some of those pairs are also from different market sectors, therefore, highly likely to break, good if your on the right side or looking in hindsight but then thats not what trading is about.

Yeah I see what your saying however if your looking at pairs on a daily basis in a program such as pairtrade finder then you will see an updated correlation reading and of course wouldn't take a trade signal on decreasing correlation, I think this list is a guide and for ease of finding suitable pairs, of course you have to do your own work and filter out pairs that aren't fundamentally correlated. Its all a game of numbers.

 

[barrychucks]

thats well said stocktrader, they tell you to in the layman's guide to pair trading to always make sure the two business are similar, operate in the same markets, same product/service. something ive always wondered though is do we want to trade pairs that have similar valuation and market capitilisation? it makes sense to me because that means they have even more in common? thoughts?

 

[stocktrader77]

thats well said stocktrader, they tell you to in the layman's guide to pair trading to always make sure the two business are similar, operate in the same markets, same product/service. something ive always wondered though is do we want to trade pairs that have similar valuation and market capitilisation? it makes sense to me because that means they have even more in common? thoughts?

well there's 2 arguments there; one is like you say to have similar value reading and mkt cap, etc... which makes for two very similar instruments which is what you mostly want to trade however there is another argurment to look for two stocks in the same industry with high technical correlation and there to only go long the stock with the lower value readings relative to the other stock, also you want to be long the smaller stock in the pair to mitigate takeover risk and even be on the right side when a large stock makes a bid for a small rival, so a pair trade can turn into a highly profitable merger arbitrage trade where your ahead of the pack.

 

[illiniry]

thanks very much for the list, this is exactly what i was looking for.