Hi dealmaker. Can you explain your logic on the latter pair, KO/PEP? The reason I ask if because I took the inverse of that position off yesterday (long PEP, short KO) after having held it for several days (it was -1.8 std deviations from the mean.) It currently sits at -1.1 std dev. I am actually looking for a retracement to put the position back on. Thanks.
PEP had dividend on 06/02 we collected the profit from the surge leading to the dividend and closed the position. KO has dividend on 06/11 so now created a new position KO long, PEP short. Note, I am not looking to collect the dividend necessarily but, mostly to benefit from the surge leading to the dividend.
No trade is suicidal unless your position size is too big. Jonny has stressed many times that he only trades small position size relative to his account. This seems to be a sticking point for pair trading criticism. No single trade is important in the scheme of 1000 trades. Fundamentals, I am sure, can be helpful for those who have the ability to read them correctly, and have good and current data. I don't know enough about fundamentals for them to do anything but confuse my execution strategy. Sure I can read PE, PEG, Mkt Cap, and if I stretch my head, even EBITDA, but Yahoo data is old relative to our trading timeframe, and most of the 'avoidable' bad trades have bad fundamentals only with my restropective eyes.... Just my 2c - it just comes down what works for the individual - if you have had success with fundamentals in the past, I am sure they can be a valuable asset to Pair Trading. Adrian
Nice analogy, and thanks for clearing it up for me. So it seems like PTF users may be approximating cointegration by trading non-trending ratio charts, and entering when pairs are see at high deviations from the spreads mean point. Walt may have a point about scanning stocks based on their historical profit performance (showing retrospective cointegration), and not filtering on correlation. When I look at Jonny's previous trades, I see a link between profitable trades and increasing correlation, and losing trades and decreasing correlation. Not a big sample, so it's a tenuous link. All good stuff to spend the idle hours investigating different ideas. I appreciate the info and the links Angelo. Adrian
i think i read that a 70% portion of a stocks movement is mostly attributable to the indices and the market. As johnny has often said short turn pair trading is mostly tech. cheers john
Quick follow-up: I have taken a portion of these off. Over $2 in the long KNDL, short PRXL. I'm leaving some on, but wouldn't surprise me to see a bit of a pullback in the pair given the run KNDL has had over past few days. KNDL currently at $13.40, PRXL at $11.46. Assuming one weighted the long INTC, short TXN at a 3:2 ratio, a little bit of profit can be had, but ultimately I expect the pair to converge to -$3.00 or so. INTC currently at $16.13, TXN at $19.89. A 2:1 ratio in the long RDC, short NFX should have one up nicely. This one works for more me thinks. RDC currently at $22.10, NFX at $35.87. Again, just my 2 cents.
Exited one trade for profits Sold CLR @ 32.17 Covered ESV @ 40.04 New trade Long SPG @ 54.51 Short TCO @ 27.95