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[amibroker] Re: Pairs trading (an example)



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>It is not a science.  More of an art form.

Chuck,

The 'art form versus science' discussion is in just about every
published work on stock or futures trading.

My take is this:

If you can state that there is about an 82% correlation between IBM
and  GENZ, and that you used a 'quick scan' to find these two as your
next 'pairs trade'... then we seem to be talking science rather than
'art form', eh?

Your Pal,

Phsst

--- In amibroker@xxxxxxxxxxxxxxx, "Chuck Rademacher"
<chuck_rademacher@x> wrote:
> I just did a quick scan, looking for some new pairs to trade next week.
> 
> My method of calculating correlation (there is no real standard)
shows IBM
> and GENZ as being about 82% correlated.  In the scheme of things,
that means
> that they are quite highly correlated.
> 
> My method of calculating also shows that they have recently deviated
from
> their typical correlation enough that I will short IBM and buy GENZ
at the
> next open.
> 
> If you look at the two charts, you will probably observe both the
> correlation and the recent deviation from the correlation.  It is not a
> science.  More of an art form.   My pairs trading system shows that
pair as
> the best trade for next week.   The system cannot tell me how long
it will
> take for the correlation to pop back in place or, indeed, if it ever
will.
> It will tell me when to quit the position, hopefully at a modest profit.
> Pairs trading is not about home runs.   It's about slow, consistent
equity
> growth with a very low ulcer index.   If both of those companies
went down
> the drain or if the whole market has a huge swing in either
direction, I'm
> not concerned.
> 
> Cheers


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