Pair Trading Strategy Journal

Quote from saratur:

Johannysharp wrote:
ROI = 64% since start of journal
Annualized = 153%
SP500 Outperformance = 102% since start of journal
>>>

Johnnysharp - Hats off! And thanks for sharing.

Please clarify: This 64% ROI, at what level of maximum margin (e.g. typical 1:2, or 1:4 portfolio margin) ? Or is it calculated based on the un-leveraged capital (in which case the hat just went to the stratosphere :) )
More...

thankyou, yes max margin is 1:10, results achieved using leverage.
 
Exited 3 trades;

Sold SIM @ 4.41
Covered GNA @ 6.02

Sold ALV @ 19.13
Covered MGA @ 29.20

Sold TEN @ 1.98
Covered TKS @ 6.90

1 new trade;

Long KIM @ 15.43
Short WRI @ 17.30
 

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Hi Johnny,

I made my way through your entire thread from the beginning. Very Interesting!

I saw you had stocks broken down by major industry, but now towards the end it looks like things are even more isolated, maybe by sector?

Also, how much money from your experience would someone have to commit to each side of a pair to realize an average gain?

Thanks and keep the journal going. It's a great read.
 
Quote from jonnysharp:

thankyou, yes max margin is 1:10, results achieved using leverage.
More...

Johnnysharp, would you mind to clarify how would the ROI look like without leverage, or say what was roughly the average & max leverage you used? ... I presume 1:10 is a typo; I am just trying to get an idea of what can one aim for. Pairs trading lends itself to portfolio-margin accounts; and based on the non-leveraged return things may look quite different with a typical Reg T margin account then with a portfolio margin account.
 
Quote from saratur:

Johnnysharp, would you mind to clarify how would the ROI look like without leverage, or say what was roughly the average & max leverage you used? ... I presume 1:10 is a typo; I am just trying to get an idea of what can one aim for. Pairs trading lends itself to portfolio-margin accounts; and based on the non-leveraged return things may look quite different with a typical Reg T margin account then with a portfolio margin account.
More...

Yes pairs trading is ideal for prop accounts, CFDs or portfolio margin. with a Reg T margin account the ROI would have been 19% or 45% annualized.
 
Quote from LazyLightnin:

Hi Johnny,

I made my way through your entire thread from the beginning. Very Interesting!

I saw you had stocks broken down by major industry, but now towards the end it looks like things are even more isolated, maybe by sector?

Also, how much money from your experience would someone have to commit to each side of a pair to realize an average gain?

Thanks and keep the journal going. It's a great read.
More...

thanks, actually at first my pairs were categorized by sector, now Ive arranged my watchlists by industry, I find this better. I'm not sure I understand your last question, an average gain is achieved no matter what size is used, eg....2% of 10k or 2% of 100k, you can committ any size to each side so long as your commissions aren't a big cut of your profits, i.e....the bigger your size the less a % your commissions are of your profits.
 
Hi Johnny,

I guess I'm asking how loose or tight you have your groupings. Do you separate stocks into 5-10-20 groups? I mean something like basic materials has a bunch of sectors. Do you lump them all into one group or subdivide them? It seems that general category is too broad, and even though they may correlate well what happens if one sector is downgraded, etc.?

(Edit: I misread what you said. OK, you have them categorized by broad industry now, but I'm assuming you check the sectors when you find a pair you like to make sure they aren't in completely different businesses)

And yes, my other question was in regards to commission problems. I would only be able to trade like 2.5G a side in order to produce enough pairs to mitigate the exposure risk.

Thanks.
 
Yes I only have pairs grouped by industry, so no need to check their business profiles.

Yes 2.5k per side will be ok, if your paying $2 round trip, and avg profit per trade is 1.5% then your commission will be about 2.6% of your profits which is fine.
 
Hi John,

First of all, let me thank you, for all the shared information.

I have read about pairstrading sometime ago, but on that time, i found it unsuitable for individual investors.

Now, with pairtradingfinder, i am changing my mind, but still afraid of the strategy effectiveness, when the market conditions shift for a clear trending line with low volatility.

Anyway, i am doing paper trading, based on ptf signals and some homemade filtering (if you have spare time, take a look on: Short CIEN long GLW).

Regarding the signals generated by ptf, i understand a entry signal is generated when ratio deviates 2STD. Do you know if this is the only data considered? RSI and volatility is also taken in consideration?

What about the exit signals. Do you have any idea how are they calculated?

Best Regards
 
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