pair trading (is that what it's called?) S&P and Nasdaq?

When they diverge by a decent amount, can you just short the upper one and buy the lower one in equal dollar amounts and then sell when they get close together so the net proceeds will be positive?

 

Part 2: how do you determine the scale on which you judge correlation?

Cuz right here it looks like a very significant difference:

 

bump

 

Your Excellency, foolish man gives wife grand piano, wise man gives wife upright organ.

Qs/S&P500 answers all your questions.

 

Does anyone have an unambiguous answer?

 

You might study the Long Term Capital Management story.

 

Why dont you ask user name : Bone he is a bigtime trader/teach of spreadtrading or go to link spreadprofessor.com.

 

Christ Almighty, the ratio I gave you dispenses with the double charts you have and shows unequivocally which of the pair you should be LONG or SHORT.

 

Ratio?

Which one of these is a ratio:

 

this ratio

try it yourself in excel or something.

you certainly CAN short one and long another. the only problem is that the outcome of those actions will be not necessarily positive.
IWM -SPY would be even better. the problem here is that you still need to know the future direction. because in both cases(SPY-QQQ or SPY IWM) one will outperform another. in either direction. if you can predict direction-then you set..but then why do you need the second half?