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There are limitations to the accuracy of simulations based on filling according to Level II bid/ask data, but it is at least pessimistic. If you are testing a very tight, auction level, system which cannot eat lots of slippage, then think about what is really involved in back testing your...

It is hard to find Tick/Trade data for free since these are large files and bandwidth is not cheap at that scale. For daily summary data, there are many scappers available to get data from CSI through Yahoo. If you are willing to pay, Tick Data is a dominant player. Their exporter...

The statistics that we normally use, standard deviation, skew, and kurtosis, are all highly sensitive to outliers. There sensitivity comes from their using high powers of a deviation. If there are are couple of outliers, the contribution pull everything. With L-Moments, only the first order...

I would go one step further that money management empowers an edge. Portfolios Sharpe Ratios can double or triple the Sharpe Ratio of its best components. And the reverse also holds. For example, grabbing after marginal trades can leave you cash-poor when a good trade comes. Michael...

How about the pair SCCO: Southern Copper , BHP: BHP Billiton ADS? Two of the largest copper producers in the world (SCCO 1st, BHP 3rd.) Long term correlation in the 90's and yearly correlation mostly > 50%. Pair started diverging 2010 Q4. For the leader, Southern Copper, I can't find...

How about the pair BTI: British Amer Tobacco ADR , MO: Altria Group ? Two tobacco companies. Both have had new all-time highs (25 year) in 2010 Q4. Historical price correlation is > 90% over all long periods, but yearly correlation, especially daily return, is spotty.

Equity Market Neutral Hedge Funds continue to make money. http://www.hedgefundsreview.com/hedge-funds-review/news/1894809/hedge-funds-continue-positive-performance-october

Any opinions about the pair DHI: Horton DR Inc vs PHM: Pultegroup Inc ? They have been 80-90% correlated until last year. They are both home construction companies. Starting in 2009, the tracking has been a little off, and especially starting 4th quarter of this year, PHM has been diving...

Thank you LimitDown for the list of "accomplishments". I just rather agree, but I can't hardly stomach all of the earmarking, illogical reasoning, and mismanagement with which the crises has been met. "As you know, you go to war with the Army you have. They're not the Army you might want or...

My 2-cents. 1. Rogue trades. If the pair is converging and the trade profit/loss is is losing money, then your position sizing sounds to be incorrect relative to your Dislocation Metric. For example, if you trade $1000 to a side based on share price, and you are measuring the pair's...

I don't know that I understand "the naive weighting scheme." I have seen a variety: margin weighting, volatility weighting, stop-loss % of trading account, ... Yes, one wishes to understand the system-market combination. (If a system is a pair-trading system, it is the combination of the...

I can't speak to illiquid trading. I select Futures markets which have a consistent core volume and open interest. CFTC tracked markets with a persistent commercial interest are ideal. Then I limit positions to 10% of the average volume and 5% of the open interest.

Sorry, typing equations is a bad habit. With Pearson correlation, we can directly relate the portfolio volatility to the allocations, market volatilities, and correlations. However much non-linear behavior is skewing the model, you can easily write the equations that hold retractively...

I'm a big fan of Spearman Rank Correlation for finding correlated pairs, but for do portfolio analytics, it really helps to be able to say that V = sigma' * C * sigma

I appreciate the word of caution. To clarify, I said that an Introducing Broker could be conned into letting one trade on a worthless check. Having pursued the lawsuit direction twice, I can testify that having a judgment and reclaiming funds are different things. This does however...

Because it is too easy to make a cogent argument which is baseless and because it is so frequent that insufficient contextual information is provided by the speaker, I try to follow conclusions with some objective evidence. This should both provide missing context and help to avoid vacuous...

:D +1

I look at Z-Score : Z(x) = (x-average(x))/stddev(x) Price 1 -> Z1, Price 2 -> Z2 Positively correlated pairs Dislocation Metric = Z(Z1-Z2) Negative correlated pairs Dislocation Metric = Z(Z1+Z2) I know that neither price, nor log price, is really normally distributed, but this corrects...

Most traders lose money. Without a famous track record, I won't trust a firm willing to let me trade more risk than my deposit. I would not trust them to actually place the trade. Perhaps they would sell me infrastructure, lessons, application fees, .... There have been too many sham...

RAID/Backups/journaling file systems/live database backups/versioning - this is a big area KevinQC has "critical data which keeps on changing every hour & thus I need a continuous back up as well as a drive ready to be replaced in case of a HDD Failure." I don't know if this is...