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<FONT face=Arial color=#0000ff
size=2>Yuki...
<FONT face=Arial color=#0000ff
size=2>
I know
your answers to the questions sent in by Ara, but why would you trade the same
number of shares rather than the same number of yen? That approach
surely doesn't sound like a "hedge" to me!
<BLOCKQUOTE
>
<FONT face="Times New Roman"
size=2>-----Original Message-----From: Ara Kaloustian
[mailto:ara1@xxxxxxxxxx]Sent: Saturday, April 19, 2003 8:41
PMTo: amibroker@xxxxxxxxxxxxxxxSubject: Re: [amibroker]
Pairs Trading (a definition for Dingo)
Yuki,
If you buy and short similarly ranked producs in
same industry, how do you get confident that one of them will be between 101%
and 150% ( why not lower ?)
Also, what king of products do you pair trade?
Stocks, currencies etc?
Thanks
Ara
<BLOCKQUOTE
>
----- Original Message -----
<DIV
>From:
Yuki
Taga
To: <A title=amibroker@xxxxxxxxxxxxxxx
href="">Chuck Rademacher
Sent: Saturday, April 19, 2003 4:46
PM
Subject: Re: [amibroker] Pairs Trading
(a definition for Dingo)
Hi Chuck,Saturday, April 19, 2003, 6:56:52 AM,
you wrote:CR> MessageI'll have a go at defining pairs trading for
you.CR> To me, there are two different kinds of pairs trading
(fundamental andCR> technical).CR> Before I get into that,
however, I'll start by telling you that pairsCR> trading is NOTHING
MORE than buying one stock and shorting another.CR> Usually, the
dollars invested would be the same for each stock.Pair trading is
one of my bread-and-butter systems. But I don'tinvest the same
amount of yen in each issue, ever. I buy and shortthe same number
of shares.The pairs I use are always in the same industry, and
usually pairsthat are very close to each other in terms of ranking in
thatindustry. Then, it's simply a waiting game, watching for the
priceanomaly between the two issues that is virtually certain to
arise.I chart these based on both absolute price differential,
andpercentage price differential. When triggered, these trades
producesome of my biggest profits, and often over surprisingly short
timeframes. They don't trade very often, which is their only
drawback,but they can fatten your wallet in a big hurry, and of course
withsubstantially less risk than straight long or short
positions.To me, pair trading (and the observations I've had while
doing it) isthe easiest evidence to refute the contention made by some
that themarket is somehow efficient (if the recent bubbles in Japan and
theUS didn't already disabuse anyone holding this silly notion).
This'efficient market theory' is an absurd contention to anyone that
hasobserved pricing phenomena between closely ranked companies in
thesame business. I'm not talking about situations where there is
aradical change in the fortune of one company vis a vis the
other,either. I'm talking about mature businesses where the value
ofcompany A simply oscillates over the years between 101 percent of
thevalue of company B and 150 percent of the value of company B. I
havepairs that make this round trip again and again, every few years,
orless. It just takes observation, and
patience.Best,Yukimailto:yukitaga@xxxxxxxxxxxxxSend
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