hedging trades with index ETFs

C

caementarius

When I believe a stock's price will go up or down, whether based on some TA or other trade idea -- I get frustrated when the moves of the overall market are a much bigger factor in determining the stock's price than anything else. I sometimes feel I might as well be trading index futures rather than stocks.

So, I've started trying to cancel out the market risk. If I'm long a stock, I'll sell some SSO (double-long ETF) to offset according to it's Beta or vice versa.

Do any of you do this regularly? Do you run a regression to get a more accurate cross-hedge Beta? The downside is it's more commissions but I like how it smooths out my P&L a bit.
 
I came to the same thing. I hedge my long-term trend following system by shorting some index ETFs in intraday trades. Seems to be a good way to reduce the drawdown ...
I don't care for the commissions, it doesn't matter if you trade with IB :)
 
Quote from nitro:

Yes, I use SIFs and ETFs to hedge baskets.

nitro
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I can take historical daily data from Yahoo and run a regression on a stock's closing prices and the ETF -- the resulting coefficient of the dependent variable (the stock) is it's beta with respect to the ETF. This tells me what % of value I need in the etf in order to hedge.

Now - How can I get a confidence interval for tracking error without doing a monte carlo simulation?
 
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