Pairs Trading UK & US Stocks Journal
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stocktrader77
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Another thing that I have read is that we should select pairs that have similar betas. The difference between the betas should be less than 0.2. The difference between the betas of GLNG and ESEA is 0.57 according to MSN Money's site. The difference between the betas of WLL and HP is 0.56 but the difference between the betas of MWV and GEF is only 0.13. Does the difference in beta values matter? If not, why not (how can a pair be market neutral if the betas are significantly different)? Click on the link below to read about the beta issue:
Pairs Trading, Convergence Trading, Cointegration
Pairs Trading, Convergence Trading, Cointegration
stocktrader77
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Do you mean for correlation? I just use a simple 100 day lookback for correlation, seems to work fine for me.
stocktrader77
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Yes some pair traders do this, however finding 2 stocks with high correlation and similar beta's are far and few between, you can position size based on beta, but I just prefer to stick with 2 highly correlated stocks in the same industry, keeping it simple is what I do.
How often should one look for new pairs? For example, I have many pairs set up in PairTrade Finder now. In six months time should I backtest again?
stocktrader77
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Yes I backtest my stock groups every couple of months and re-add pairs, there's no hard rule for this, you could probably keep the same pairs for years if the correlation holds up.
stocktrader77
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Sold SMDR - 103.75
Covered DGO - 159.75
Covered DGO - 159.75
An excellent thread - thanks Stocktrader. This is something I've been thinking of trying but not yet had a crack at. The PDF is really useful. The examples imply that IG Index allows you to place non-integer stakes - is that the case ? eg: Long RDSA at £1.00 per point / short BP at £3.29 per point. I use Capital Spreads, who allow only stakes that are multiples of £1.
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I've been exploring the guidelines offered in the PDF this afternoon and done some calculations of my own. Based on the last 22 days' data it seems that the DAX and the FTSE 100 are 96% correlated and are good candidates for pairs trading.
However, if the calculations are performed using EOD data the market is likely to have moved by the time you try to open new positions the next morning. So do you recalculate to seek confirmation that the trade is still viable ? Or does your program constantly monitor prices during the day and give signals to be acted on immediately ?
However, if the calculations are performed using EOD data the market is likely to have moved by the time you try to open new positions the next morning. So do you recalculate to seek confirmation that the trade is still viable ? Or does your program constantly monitor prices during the day and give signals to be acted on immediately ?
The default refresh for PairTrade Finder is set at 5 minutes by default. You have to keep the program running while the markets are open so that it can refresh the prices. You can adjust the time between automatic price refreshes. In the Preferences, you can set the program to produce a sound every time an entry or exit is generated for the stock pairs that you have saved.
Lado
Lado
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Stocks and ETF's. I haven't tried inputting index symbols. At the end of the day you would be pairing ETF's anyway wouldn't you?
I have only been using the program for two weeks so I am no expert. However, I have read about the other software approaches available but none appealed to me. There is room for improvement with PTF but, for the price, I think it is the best out there. Plus when you have very experienced investors such as the author of this thread (I hope he doesn't think we are hijacking his journal!) using PTF, that is a strong endorsement in my opinion.
Lado
stocktrader77
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JGH, yes you can either load the cash indices or ETFs as lado suggests, you can trade the emini's with the indices signals but I wouldn't even bother, theres heaps of really good stock pairs out there. No your not hijacking the thread lado, I want this journal to be a place to share and learn for all of us, just because Im a experienced trader doesn't mean I can't learn anything from someone just starting out, a lot of my ideas have been induced by someone else's thoughts and opinions, so they are always welcome.
Placed 1 trade on Monday in the US residental property industry
Long Entry EQR - 18.47
Short Entry ESS - 53.16
Placed 1 trade on Monday in the US residental property industry
Long Entry EQR - 18.47
Short Entry ESS - 53.16
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Thanks Lado and Stocktrader. I was envisaging spreadbetting indices such as DAX / FTSE100 (or, strictly, their cash futures) rather than trading ETFs that are based on them - unless you recommend otherwise. I'm also looking at pairs such as gold / silver, which are very much out of kilter at present - again, ideally spreadbetting rather than using ETFs.
I guess if the software doesn't look at commodities then one could use certain ETFs as a very good proxy for them.
I guess if the software doesn't look at commodities then one could use certain ETFs as a very good proxy for them.
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the blades
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interesting idea, but if you think that a universe of about 12,000 stocks is providing only a few opportunities a day, there may be little chance that a few indices / commodities through up any opportunities. Worth a look though....
UTB