relative drift of two stocks

What purpose does this serve?
In pairs trading, we want to find some parameter which governs the statistical tendency for two price lines to intersect on an overlay chart or a single price ratio line to revert to the mean of a moving average.

 

They are both actually special cases of the more general case.

If the lines overlap, then b=1
If a ratio line reverts, then b=ratio

Rob

 

How are you determining this? absolute values, pct chg, log diff, weightings?

 

Would it be useful for trading if there existed 2 that are the exact inverses of each other?
What about BOIL and KOOL ?

What about the deviation rate (for example %) from a reference r in time?

 

Sorry, BOIL and KOLD was meant. Both are inverse to each other. They are ETFs.

 

normally percent change.