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hi louw,
several months ago there was a
thread about pair trading on this board with some very interesting posts by
yuki. have a look at message #38336 and #38346.
correlation of 2 stocks (or rather
of their ROC) can go from -1 to 1.
1 means "a perfect match" with both
stocks doing the same moves -- 0 means they are not correlated at all -- and -1
means that one stocks does exactly the opposite as the other, so when one stock
of the pair goes up 3,7% the other would go down 3,7%.
so if you are not able to trade
short with your broker you could *THEORETICALLY* try to find stocks with high
negative correlations and go long on both. but i seriously doubt that this way
you could achieve a market neutral position (which is what pair trading is all
about). if the whole market has huge up or down swings those negative
corelations are not likely to stay that way ...
adios,
dirk
<BLOCKQUOTE
>
----- Original Message -----
<DIV
>From:
<A title=louwcoetzer@xxxxxxxxxxxxx
href="">Louw-Roux Coetzer
To: <A title=amibroker@xxxxxxxxxxxxxxx
href="">amibroker@xxxxxxxxxxxxxxx
Sent: Monday, November 24, 2003 6:13
PM
Subject: RE: [amibroker] Re: To Correlate
or Not to Correlate, that is the quuestion !
Hi John
!
<FONT face=Arial
color=#0000ff>
I think so
yes, reason being that not one of them will change the same in value... I have
tried it before when I discover a good share in consolidation phase with low
volatility...I would then buy the share via my stockbroker, but the short side
I unfortunately have to do via Spread trading of CDF's for that matter...the
situation here in SA is not the same as with you guys... but they ripped me
off heavily buy adjusting their spreads all the time into both
directions...thus no joy there...
<FONT face=Arial
color=#0000ff>
So now I'm
out to long the whole lot with my normal stock broker ... but buy balancing
the portfolio with properly selected shares basedon volatility and/or
correlation, it is possible to smoothen out the equity curve a bit and
reduce the overall volatility of the portfolio in whole... for this a 100% non
correlating option would no go down to well I think...
<FONT face=Arial
color=#0000ff>
Thanks for
your thoughts it is not wasted as you got me thinking of another plan that I
have not previously thought of...I will let you know as I take it further
!
<FONT face=Arial
color=#0000ff>
Kind
regards & happy trading !
<FONT face=Arial
color=#0000ff>
Louw
Coetzer
<FONT face=Tahoma
size=2>-----Original Message-----From: john gibb
[mailto:jgibb1@xxxxxxxxxxxxx]Sent: 24 November 2003 06:13
PMTo: amibroker@xxxxxxxxxxxxxxxSubject: Re:
[amibroker] Re: To Correlate or Not to Correlate, that is the quuestion
!
Hi Louw.
I have no actual pairs trading experience but
wouldn't '100% opposing' be the ideal A-will-outperform-B scenario? Couldn't
you then go long A and short B, with stops of course, once you get a signal
that A is likely to rise?
-john
PS: you might find this article of interest <A
href="">http://www.thestreet.com/comment/openbook/1155546.html
<BLOCKQUOTE
>
----- Original Message -----
<DIV
>From:
<A title=louwcoetzer@xxxxxxxxxxxxx
href="">Louw-Roux Coetzer
To: <A
title=amibroker@xxxxxxxxxxxxxxx
href="">amibroker@xxxxxxxxxxxxxxx
Sent: Sunday, November 23, 2003 10:52
PM
Subject: RE: [amibroker] Re: To
Correlate or Not to Correlate, that is the quuestion !
Thanks
JS - forgot about that one OOPS !
<FONT face=Arial
color=#0000ff>
<FONT face=Arial
color=#0000ff>Cheers
<FONT face=Arial
color=#0000ff>
<FONT face=Arial
color=#0000ff>Louw
<FONT face=Tahoma
size=2>-----Original Message-----From: johanskatt
[mailto:johanskatt@xxxxxxxx]Sent: 23 November 2003 04:29
PMTo: <A
href="">amibroker@xxxxxxxxxxxxxxxSubject:
[amibroker] Re: To Correlate or Not to Correlate, that is the quuestion
!The Correlation function might be
useful.<A
href="">http://www.amibroker.com/guide/afl/afl_view.php?name=CORRELATION/JS---
In amibroker@xxxxxxxxxxxxxxx, "Louw-Roux Coetzer"
<louwcoetzer@xxxx> wrote:> ECM StationaryHi there all
!> > > > I have tried to think of various
methods to find a matching Non-Correlating> match for a
particular shareA ...I thought of doing this by adding the
close> for shareA to the shareB and dividing it by 2 to get
an average price...I> would then use some form of standard
deviation to find out how much shareB> is deviating from the
average - the share that deviates the most would then> be the
most likely candidate - now I am convinced this would not work as
it> only suggests that shareB is more volatile than anything
else...> > > > What I am trying to do is to
scan a short watch list and to find say 2 or 3> pairs (
2shares/pair). The 2 shares in each pair must be
non-correlating to> a certain extent in order to lessen risk
if both are purchased ( almost like> what Gary was talking
briefly about in his presentation ). Obviously the>
shares in the pair can not be 100% opposing as then no money would
be> made...My mind is still a bit baffled about this and any
suggestions and> guidance in the right direction would be
greatly appreciated... I am not> asking for an AFL
Super Formula on a platter...only to be pointed into the>
right line appoach...I will try to create the code myself ( the only
way to> learn I believe ) and if stuck will ask for a little
push...> > > > Kind regards> >
> > > > Louw Coetzer> >
> > > > > > >
---------------------------------------------------------------------------->
----> Louw-Roux Coetzer
- louwcoetzer@xxxx>
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