Nuts and Bolts of Pairs

Discussion in 'Trading' started by bungrider, Jun 30, 2002.

  1. Hehe, Don speaks up and everyone gets excited. :D So you're basically saying to keep it simple and stick to the intraday time frame?

    I take it the more correlated things are, the better - one could make the argument that less correlated stocks would provide more risk and potential reward, but I'm guessing that argument is probably bullshit?

    How does one deal with varying betas and varying prices?

    #11     Jul 1, 2002
  2. We deal with varying betas and prices by weighting the share amount ratio a bit....1200 x 800 shares, etc.

    #12     Jul 1, 2002
  3. So again, keep it simple.

    #13     Jul 1, 2002
  4. H2O


    Take a look at for more info about pairs trading...
    #14     Jul 1, 2002
  5. NDQnCA

    NDQnCA Guest

    don (0r anyone else), could you expand on the concept of only taking one side of the pair -(take the stronger leaning on the weaker) ? if you have a pair, say COFKRB and it spikes up, you are supposed to short COF and go long KRB. what if right when you are going to put the pair on and you have the COF short, you notice a huge short seller in KRB showing 80,000 on the offer with the next level 10 cents down (When you are trying to get long). I know it would make sense to wait on the KRB long and try to get a better price- but is a better move to just keep the COF short and not even enter KRB? or is it important to get the pair on all at once and let the spread take care of itself regardless if you see impending doom for your long side? thanks.
    #15     Jul 15, 2002
  6. Since we enter only one side at a time, we have the choice of making a profit based on momentum, relative strength, or any combination of factors on that one stock.....but if the stock behaves badly, then we simply enter the other stock, thus making for a completed pair.

    We may trade in and out of one side 20 -40 times in a day, and only do both sides 4 or 5 times.....

    There is a little more to it, but this is the "nuts and bolts"...

    #16     Jul 15, 2002