|
PureBytes Links
Trading Reference Links
|
I copied this post from another site. I also did a check on Amibroker
.chm on "pair trading" but couldn't find anything close to this method.
I'm not sure if our "Correlation or RSquared" formulas are the same thing.
It calculates the correlation of any two stocks, and finds the max
negative correlation, then long one and short another.
For example, if one stock A showed price movement of 8%, 10%, 13% and
17% over four period.
step 1, calculate the mean of these returns.
mean(A) = (8+10+13+17)/4 =12
step 2, calculate the deviation.
period 1: 8-12=-4
p2: 10-12=-2
p3: 13-12=1
p4: 17-12=5
step 3, square the deviations.
get 16, 4, 1, 25
step 4, sum the squared deviations and divide by (n-1)
variance(A) = (16+4+1+25)/(4-1)=15.33
step 5, take the square root of the variance to calculate standard
deviation.
standard deviation(A)=sqrt(15.33)=3.92
Suppose a stock B returns 1%, 2%, 4%, 5% at the same period, with
same procedure, we get the standard deviation(B)=1.83, mean is 3
Calculate the covariance of stock A and B:
the formular is (Sum(A-MEANa)*(B-MEANb))/(n-1).
i.e. (8-12)*(1-3)+(10-12)*(2-3)+..+..=21
21/(4-1)=7
Finally, the correlation coefficient is 7/(3.92*1.83)=.976
The number ranges from -1 to 1. If stock B's return is 5%,4%,2%,1%
(reversed), the coefficient should be -.976. Choose the two with the
coefficient as near as -1. Long one and short another, but be sure
not to take the wrong direction. :-)
dom
------------------------ Yahoo! Groups Sponsor --------------------~-->
What would our lives be like without music, dance, and theater?
Donate or volunteer in the arts today at Network for Good!
http://us.click.yahoo.com/Tcy2bD/SOnJAA/cosFAA/GHeqlB/TM
--------------------------------------------------------------------~->
Check AmiBroker web page at:
http://www.amibroker.com/
Check group FAQ at: http://groups.yahoo.com/group/amibroker/files/groupfaq.html
Yahoo! Groups Links
<*> To visit your group on the web, go to:
http://groups.yahoo.com/group/amibroker/
<*> To unsubscribe from this group, send an email to:
amibroker-unsubscribe@xxxxxxxxxxxxxxx
<*> Your use of Yahoo! Groups is subject to:
http://docs.yahoo.com/info/terms/
|