Ive kept my position sizing the same the entire journal as Ive been withdrawing most of my profits to enjoy life a little, snowboarding/surfing trips, other things. But this year Im going to really knuckle down in trading and re-invest my profits, increase size and let the positive effects of compounding begin.
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Pair Trading Strategy Journal
- Thread starter jonnysharp
- Start date
Ive kept my position sizing the same the entire journal as Ive been withdrawing most of my profits to enjoy life a little, snowboarding/surfing trips, other things. But this year Im going to really knuckle down in trading and re-invest my profits, increase size and let the positive effects of compounding begin.
Quote from jonnysharp:
10-27-08 11:12 PM
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Quote from ScreenLocal:
Hi Jonnysharp,
Is there a way you can calculate the potential profit if the bidu/goog ratio goes from 0.55 to 0.65?
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Yes you could calulate the potential profit on that trade, in your example if the ratio went from 0.55 to 0.65 that would be an 18.18% increase in the ratio, so take the $$$ committed to one side and multiply by 0.1818 and that would be the profit.
I wish it were this simple, and unless I'm misunderstanding something here, this won't work. It is an increase of 18.18% in the ratio, but the profit won't fall out by multiplying that by one side of the leg.
Am I missing something?
WB
Quote from waltbx:
I wish it were this simple, and unless I'm misunderstanding something here, this won't work. It is an increase of 18.18% in the ratio, but the profit won't fall out by multiplying that by one side of the leg.
Am I missing something?
WB
Let me give you an example;
Long $10k ABC @ 100
Short $10k XYZ @ 181
Ratio = 0.55
Sold ABC @ 118
Covered XYZ @ 181
Ratio = 0.65
Profit on ABC = 18% ($1800)
Profit on XYZ = 0% ($0)
0.65 / 0.55 = 1.1818
Quote from jonnysharp:
Let me give you an example;
Long $10k ABC @ 100
Short $10k XYZ @ 181
Ratio = 0.55
Sold ABC @ 118
Covered XYZ @ 181
Ratio = 0.65
Profit on ABC = 18% ($1800)
Profit on XYZ = 0% ($0)
0.65 / 0.55 = 1.1818
Hello Johnnysharp
You are showing a profir of 18% but I think it is 9% because you need to calculate the profir on the TOTAL exposure that you have (both legs of the trade) since margin requirements for a PAIR TRADE are taken to be the 2 legs as independent trades.
Quote from Gabe2004:
Hello Johnnysharp
You are showing a profir of 18% but I think it is 9% because you need to calculate the profir on the TOTAL exposure that you have (both legs of the trade) since margin requirements for a PAIR TRADE are taken to be the 2 legs as independent trades.
yes I know, in my orignal formula I said to multiply the ratio change by one leg only.
Quote from jones247:
Hi jonnysharp,
I really appreciate your thread. thanks for your continued contributions.
btw... what's your return on capital since last August (either the 5 or so months or annualized)?
thanks,
Walt
ROI = 64% since start of journal
Annualized = 153%
SP500 Outperformance = 102% since start of journal
Also with less risk, exposure and volatility of SP500.
Jonnysharp,
How are you managing the ANV/GRS trade since GRS took off? Do you have an uncle point or just stay in now that it is even more out of whack and you are well diversified anyway. I noticed GRS has had positive news in the last few weeks with positive earnings and an upgrade. Do you even take that into account, even though it is after the fact? Seems like it made a difference although in a delayed way.
Also, you mentioned you trade equal dollar amounts. Does that mean you trade stocks with equal beta's or do you not use beta?
Thanks,
Scott
How are you managing the ANV/GRS trade since GRS took off? Do you have an uncle point or just stay in now that it is even more out of whack and you are well diversified anyway. I noticed GRS has had positive news in the last few weeks with positive earnings and an upgrade. Do you even take that into account, even though it is after the fact? Seems like it made a difference although in a delayed way.
Also, you mentioned you trade equal dollar amounts. Does that mean you trade stocks with equal beta's or do you not use beta?
Thanks,
Scott