Registered: Nov 2006
03-08-10 04:54 AM
I've been reading pair trading related posts on ETrader site and wanted to ask question.
Anybody thought about intraday three way pair trading method?
For example, let's say there are three highly correlated stocks, ABC.
At 9:30 AM, A is up 0.9%, B is up 0.3% and C is up 0.1%
Difference between A and B(0.6%) is larger than the difference between B and C(0.2%)
1. A/B pair: Short A and long B on equal dollar basis assuming 0.6% gap will decrease
2. B/C pair: long B and short C on equal dollar basis assuming 0.2% gap will increase
so you have short A, short C and long B positions which are market neutral on total dollar basis.
Maybe it can be applied to index futures as well? (ES, NQ, YM)