ideas for pair trading

[knightD4]

hi!

I like to (sort of) pair trade in very small timeframes (1-5min). I wonder if you can recommend a pair of stocks satisfying the following conditions 1. both very liquid (>2M shares daily average); 2. reasonably correlated 3. both not cheap (>$100).
My favorite right now is (pot,mos) pair. But, if you know others please tell me!

thank you,
knight

 

[r.w.]

I profited from the correlation between the Dow Jones Index and the dollar/yen exchange rate in that time frame. You might want to take a look at that.

 

[TheBramble]

I like to (sort of) pair trade in very small timeframes (1-5min). I wonder if you can recommend a pair of stocks satisfying the following conditions 1. both very liquid (>2M shares daily average); 2. reasonably correlated 3. both not cheap (>$100).
My favorite right now is (pot,mos) pair. But, if you know others please tell me!

Why would you wany them 'reasonably correlated'? Stongly non-correlated (-1) would make more sense surely?

While I'm totally supportive of the need for good liquidity, I'm stumped why you'd want realtively high price (>$100). The two things don't blend that well and rather dimisnish your pool of possibilities.

 

[knightD4]

Why would you wany them 'reasonably correlated'? Stongly non-correlated (-1) would make more sense surely?

While I'm totally supportive of the need for good liquidity, I'm stumped why you'd want realtively high price (>$100). The two things don't blend that well and rather dimisnish your pool of possibilities.

Correlated because i go long stronger of the two when both are locally strong or short
weaker of the two when they are locally weak. if trade doesn't work from the start i go
the other stock in the opposite direction and optionally close the other trade.

high price is to make commision cheaper (need fewer shares).

 

[luckyd1976]

hi!

I like to (sort of) pair trade in very small timeframes (1-5min). I wonder if you can recommend a pair of stocks satisfying the following conditions 1. both very liquid (>2M shares daily average); 2. reasonably correlated 3. both not cheap (>$100).
My favorite right now is (pot,mos) pair. But, if you know others please tell me!

thank you,
knight

Knight,
I havent tested their correlations but here's a few off the top of my head

>$100
POT/MON
MOS/MON
SPY/DIA

<$100
V/MA
XOM/CVX
GD/LMT
PEP/KO
LOW/HD
APA/CHK

God there's millions of combo(s). Pull up the Industry and test correlations of the 1-2 by marketcap. If those dont correlate enough for you, switch it up (move to top1 and 3) of market cap til you find the correlations you are looking for.

 

[luckyd1976]

Have you tried pairs trading using a third variable that both stocks are correlated with?

For example airline stocks, looking at short term fluctuations in oil price? Or, for a simpler example, oil stocks even?

GJ

*disclaimer Im not a pairs trader*

Would Oil/Oil stocks (Gold/GolsStocks, etc...)for that matter any commodities/equities that are in the business of those commodities be the better candidates for pairs trading?

 

[grantx]

Lucky,

Re oil/oil stocks, it may be better to seperate the stocks into (mainly) upstream or downstream. This may be a play in itself. Or long oil/short Nikkei (Japan imports all of its oil so feels the pain of higher oil prices).

Grant.

 

[knightD4]

Thanks!
I'll give your ideas a try.

 

[luckyd1976]

Has anyone paired the Index ETFs w/ the Leveraged UltraETFs and/or Short ETFs??? Since those Shorts and Ultras have separate money inflows, I would think there's some good arbitrage plays.