Any way for a rookie to trade oil/gas?

[Hamlet]

Quote from SethArb:

I see XLE vs crude oil price has widened

since the hurricance hit ?

what has been the historical correlation between

XLE and crude oil prices ?

not that I will pull the trigger on this trade

but whats the downside with going long QM
vs short XLE for a trade ?

of course one would have to manage risk and size the spread accordingly.

The correlation is about .95.

The spread has not actually widened but narrowed and then crossed over last 2 weeks (that is based on 6 months data, if you are looking back only over one month then it appears to have widened. Funny thing how spreads change according to your historical perspective.

The good trade was end of aug when the spread was very wide (short crude, buy xle), spread went from 12 to -5 where it now stands. It might be good time to do opposite.

 

[Boy Plunger]

1) How are you calculating a QM/XLE spread ?

2) Why are you calculating a QM/XLE spread ? lol


EDIT: the downside to going long QM and short XLE is being wrong. Selling QM and going long XLE is the only trade, for me, ST but that can change too.

I'm questioning the .95 number...please elaborate...thanks...

 

[SethArb]

I too am questioning that 95 % correlation number you suggest. here is an article from one yr ago.

has the correlation gone from one extreme to the other so fast?

www.streetauthority.com/cmnts/sp/2004/09-13-xle.asp

-Although most of XLE's component stocks are involved heavily in the oil patch, oil prices are not highly correlated with XLE (near 10%).-

 

[SethArb]

ok ... here is an article that says the following indices have a high correlation to Crude.

http://mediaserver.thinkorswim.com/transcripts/Aug242005_speculating_ crude.pdf.

-Tom Preston: The OIX and OSX are pretty good proxies for crude oil. They currently have correlations over 90% with crude oil.-

NOW I AM REALLY CONFUSED .... AS I assume XLE has high correlation to ^OIX + ^OSX

 

[KevinK]

The XLE was up a good bit this week and crude was down.

 

[Hamlet]

Quote from Cluseau:

1) How are you calculating a QM/XLE spread ?

2) Why are you calculating a QM/XLE spread ? lol


EDIT: the downside to going long QM and short XLE is being wrong. Selling QM and going long XLE is the only trade, for me, ST but that can change too.

I'm questioning the .95 number...please elaborate...thanks...

I think the reason for the confusion regarding the correlation of QM/XLE is in the way that it is calculated. My settings were based on comparing values over 6 months, which resulted in .95. I should have used daily % change however, which yields a correlation of .53 - big difference!

I used software to calculate the spread (normalized for best fit), because it was brought up as a possible good trade and I was curious to investigate. There was a good trade (sell QM/XLE), but it was two weeks ago at the extreme!

 

[SethArb]

how could someone have taken this trade correctly this week to insure max profits ?

maybe options ? or some spread adjusting for Vols ?

< whats the downside with going long QM
vs short XLE for a trade ?

of course one would have to manage risk and size the spread accordingly>