Good thing you were on vacation, otherwise you might have been scooping up those .90's and blown out or doubling down at this point. It's all about timing isn't it. And it looks like you may have timed this perfectly. I would add, on a fundamental note, that APPB started preaching that their carry-out service was going to be successful and they recently delivered increased same store sales as they foretold. I would expect APPB to remain strong but there's no reason why DRI can't pick up some ground. Royce
they gave one of the most logical examples that certainly makes sense MU - Micron Tech to SMH - Semi Cond Holders the correlation was very tight, by visual reference, I estimate over 85% (just saw the chart on the TV) anyone have other pairs?
well, today was a crappy day for pairs trading.... LLYMRK, ADITXN, KOPEP, MWDMER were complete garbage why the hell is ADI up 3.50 today while TXN, NSM up under $1??? MER's price target is raised, less brazil exposure- yet MWD was WAY stronger than MER.......it seems illogical. and everyone has had a hard on for LLY which was strong while MRK was the weak piece of junk......hmmmm....well, i guess its just the 'ol squeeze....i went a little past my stop losses today when these ones started trending....... but the real problem today was CVSWAG- i need to find something else to pair with WAG cause CVS is just such a dead stock- it sat in a 15 cent range for most of the afternoon while WAG went all over the place- those kinds of pairs are very hard to trade unless you have the one moving stock really figured out. well, i was just pissed off because WAG, even with 14% better same store sales was downgraded intraday by AGED, and my crappy briefing.com reported it 50 minutes late and by that time, the stock was already getting hit and it was all over. I stopped myself out for a $1500 loss. so, all in all, a really tough day for us pair traders, or at least the ones in my office.i hate trading days like this where there are trends with little retracement. but, i'm holding ADITXN and CVSWAG short overnight and with those and the opening plays i always do, making my total day's loss of $1800 back should be relatively easy to do tommorrow- lets hope
Totally agree with you with regards to CVS/WAG. Still holding 2 legs and will hopefully close them out tomorrow at a smaller loss.
Closed DRI/APPB today at R=0.8081. Nice profit. Opened FO/ITT as PairsTrading.com recommended today. Al
hallo to everbody, I am new to ET and this is my first post. I find the discussion on pairstrading pretty interesting, since I've been doing some research in that field for several months. Le me give you a brief overview of what I did. First thing was that I tried to find a pure mathematical/statistical approach to the whole subject. so i took the s&p 500, formed all possible pairs (125.000) and tested a simple startegy using bollinger bands. i did that to have statistical material to play with. so i was able to sort the results by the different GICS-levels. it was interesting then to see that there were sectors that performed quite well, like banks with a SharpeRatio for the whole sector in the area above 1.2. it was no surprise to find that boring industries with rather homogenous companies like oil and financials did best in a test with all possible pairs trading. unfortunately it became obvious that the edge was diminishing at the end of the nineties. so we entered next step which was to select the pairs instead of taking all of them. we used two hand full fundamental data like pe ratio, priceToBook, sales to debt ratio and stuff of that kind and tried to improve the strategy by using stops, some filtering and take profits. we came to portfolios that seemed not loose their edge. but we still were in low sharpe ratios of about 0.9. and we had several weaknesses in our model. first we assumed that the s&p members were the same in the mid nineties as they are now. this is not the case. since 1993 there were about 300 changes within the structure of the s&p. second we had a natural survivor bias. bankrupt and unlisted stocks are not included in the analysis. third we did our fundamental analysis at the end of the data. so we were kind of prophets for the similarity of two companies. now to get rid of these weaknesses we went one step back and gave up the fundamental comparison and said we test weekly which pairs out of the universe of all pairs which are in the same subindustry had the best sharpe ratio in recent time and traded this for the next couple of weeks. doing this we got rid of our fundamental comparison problem. we could test a sharpe of about 1 with this dynamic retraining. still we have survivorship bias in the fundamentals. we try to get rid of that by building a database that contains all changes and all data about all stocks in the sp1500, since we feel it is better to have more stocks for each sector than the sp500 offers. the actual reason for me posting here is that i am still unsatisfied with our strategy. i tested quite different things from correlationDependentBands to modifiedBollingers with filters in volaDifferences, shortTermCorrelationFilters, RSI-DifferenceFilters and other stuff. i find it very strange not to be able to efficiently trade highly similar and correlated pairs consistently. it seems that correlation and tradeability do not go hand in hand. at least with my current tools. it sems to me that it is hard to find one strategy - no matter how flexible you build it - that works consistently for longer on a daily basis. we are still considering whether we should trade the pairsstrategy i mentioned, since the results seem rather low for the effort put in. sorry for this long inital mail. i hope i am right placing this in this thread. peace
Stocks have a mind of their own intraday for sure. The problem for me has been that the "intermediate" term has now also loosened more than it used to have, causing the pain threshold to increase [greater time to convergence/divergence] and therefore the risk. Therefore, IMHO, the "only" way to trade pairs in the "current" environment is: 1) Trade companies that are not going to zero bar nuclear war 2) Expand the time horizon in which you are looking for them to converge/diverge 3) The most difficult thing of all, ADD WHEN THEY GO AGAINST YOU. This is the key and knowing how to do it is tough at best. I have also been thinking about modifying the position sizing as it relates to pairs. Finally, _TRADING_ one side and using the other as a crutch can be helpful if you notice that they are moving together that day. nitro