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Hi everyone, I haven't looked at the thread for quit some time, was out for Christmas and New Year. No trading for the past two weeks, just hot sun and warm ocean... Now I am back. A lot of my pairs that exhibited extreme oversold/ overbought conditions in Nov. and Dec. are now converging...

man, What's wrong with calculating correlation on price? How calculating correlation on yields gives you better prediction? Al

Hi Homer, Apparently what they did was they took certain correlation and divergence parameters and calculated all the pairs for the Russell for the past 10 years. According to them, any pair has a probability of 80% to revert back to mean within 2 months. I guess if you trade all the pairs...

I got an e-mail from www.pairstrading.com over the weekend stating that they lounched a new pairs trading software product on their site. I subscribed today for the first time. The software gave me 33 pairs for the Russel 1000. Some of them look pretty interesting. Some are really strange. Has...

Hi Nitro, What was the reason you stopped pairs trading? Was it the pairs that blew out because of earnings? Or was it because you just got bored with small profits and those positions that went nowhere for weeks? I feel the same way sometimes. But look at the reality. The most successful...

Hi man, Could you please explain what is the pattern recognition tool that you are using. Al

Hi man, I find that despite being market neutral, pairstrading is still dependant on the direction of the market when you trade pairs based only on correlation. For example, the pair TXN/MWD is highly correlaed over the past 2 years. However, TXN will always underperform MWD in the downtrend...

Hi, You are absolutely right about pairstrading-related changes in the market place. That is the reason you are seeing companies like FO and ITT or FO and LMT having correlation of greater than 90%. IMHO, correlation is a key to some underwater processes in the market not visible otherwise...

Hi Royce, I am doing both. I only trade some of the Pairstrading.com's pairs that make sence to me such as MXIM/LLTC, GM/DCX, TGT/WMT, SBC/BLS, XLNX/ALTR, FO/ITT, AGN/MRK. I am also testing 2 year correlation with ratio at 2SD from the mean or greater where the graph crosses 10DEMA in the...

Hi everyone, Still holding FO/ITT. Opened a new position today BK/MEL @ R=0.9190. I am planning to sit in it for a while. Despite some fundamental problems that BK had in a recent past, I still feel that the ratio will correct to 1.1 or so. Technically it looks just beautiful IMHO. Tight stop...

Closed DRI/APPB today at R=0.8081. Nice profit. Opened FO/ITT as PairsTrading.com recommended today. Al

Hi, everyone. I just got back from vacation. Did not post for a while. Opened a new position today: DRI/APPB @ R= 0.7589. High correlation, same industry, better news for DRI today. Any thoughts? Al

According to my calculations these are the most correlated stocks with KLAC within S&P 500 : MKSI BBY EV USIA CAT AKS WHR URI TGT SWK CD Al

Hi galtg, Welcome. I am going to plug in your 21 day stoch with 6 day rsi into my correlation. Sounds interesting. Let me test it. If you like IP/TIN, you should love WMT/KSS and ED/TXU. A bit to scary for me. Quite a rare event. Not enough occurrences to produce good statistics. But...

Hey Bob, I opened the position on 9/20. I looked at your record... Do you have a system or do you scalp general correlation 100 shares at a time? What is your total relative P&L? As far as pairstrading.com performance, making 100,000 on 300,000 account in severe bear market over the past 9...

Closed FNM/FRE today at R=1.137 with 3% gain. Could not wait any longer. It is still quite far from 40dma. Working on my timing... Al

Hi Royce, Currently I am testing several systems. All of them are based on correlation analysis. However, some of the constrains are different. For example, FO/ITT and FDC/GWW belong to the "flat" 40dma system. Something like DLX/ODP is more trendy but has better risk parameters on a longer...

Hi Mark, How do you find the spreads you use and how do you determine the percentage number? Al

Hi trendsetter, You're describing what the majority of pairs traders do: you find a correlated pair of stocks and trade it increasing the position with increasing deviation and decreasing it with reversion. This could and does work, but what happens if you continue to double down against the...