Pair Trading Strategy Journal

johnnysharp,

1/ i thank you for this journal.

2/ it is very useful for me

3/ i hope you do it for a while (as long as you make money and beyond) :D

4/ it is very informative

i also wanted to share something . Iwas surfing the web and i came accross this article.

I am a newbie and i use a Spread betting co to trade a small amount. As you know the trouble is the spread. However , i discovered that in some area i could use Shares Versus Index. :)

Anyway just a thought.

Again thansk for the journal and all the best.

-quote-
Shares Versus Index

* Another way to pairs trade using spread bets is to trade a stock against the underlying index

http://www.learnmoney.co.uk/spread-betting/pairs-3.html

-unquote-

:cool:
 
I don't know too much about spreadbetting, I like to trade inside the spread, why don't you try a CFD provider with direct market access. Im not a fan of share vs index pairs because its not 2 similar business's and that is the foundation of pair trading.
 
Quote from chiefraven:

hey guys, in the pictures posted here.... i understand the ratio, and the rsi charts... however, how does pairtrade finder filters for corelations?
can anyone tell me what moving average it uses or something?
More...
I have no clue how the pairstrader make it.
For the correlation formula you can have it on the web. Wiki, or use correl() in Excel.
For the period, test the thing and find what works.
Correlation is a time varying thing and blindly using a black box (PT) is not an optimal solution (feels good though). So you have to find it yourself. I'm not sure people have access to the code used in PT.
I ploted the correlation on GG and ABX. The graph shows how the correlation evolve throughout time with an;
1- Increasing timeframe (from 1 to 166 days)
2- 30 days rolling window
3- 50 days rolling window
I personally prefer the 50. With a faster window (10-20) you catch faster some deviation from usual correlation.
I also have no clue what this increasing correlation is on the PT charts posted.

Good luck
 
Johnny:

Great journal...seems like if my math is correct you are running above a 40% IRR making certain assumptions. Great job! You've got me very interested in this topic.

I have two questions. I recently purchased pairtrader and was looking at some of your trades to learn from them. I changed my settings to those you shared a month or two ago and looking back the software signaled an entry for SPG/TCO on 1/21, yet you entered the trade on 2/4 or 2/5, although it appears you exited with their exit signal.

FYI I have correlation lookback at 100 days, Std Dev 20, RSI Lookback 20, ratio lookback 14, stretch 14, pair stretch 2.

Are my settings off or different at this point or did you delay entering the first trade for a reason?

Also, on the recent HP/UNT trade, the correlation looks very good but is on a slight downslope and I think at one point you mentioned you liked entering when correlations were on an upslope. It seems that their ratio chart is great so I was wondering if the fact that it was still so high, despite not being as high as it was...was the reason you took this trade?

Thanks so much.

Mike
 
hey guys,

anyone find correlated pairs by using excel or methods other than pairtrade finder?


Can anyone describe how they find their pairs? Do you get a list of all tradable symbols from a certain source, then input them all into an excel sheet?

but how do you find the correlations between symbols.... i mean if i was to have a symbol in mind, and want to match a symbol with it, then all i have to do is find a stock that has 70 or 80 or above correlation .... however, given a list of stocks... how does it find all the permutations of correlations between pairs?

If anyone can help me get started without using pairtrade finder, i would really appreciate it.

I want to be able to use the excel sheet to find pairs to trade, then enter those pairs into my Tradestation watchlist, and watch them on charts manually since i have added my own filters...... but before i can even backtest it, i really need to figure out how i can find pairs and correlations without using pairtrade finder.

if anyone can help, i would be greatly appreciate it
 
Quote from chiefraven:

hey guys,

anyone find correlated pairs by using excel or methods other than pairtrade finder?


Can anyone describe how they find their pairs? Do you get a list of all tradable symbols from a certain source, then input them all into an excel sheet?

but how do you find the correlations between symbols.... i mean if i was to have a symbol in mind, and want to match a symbol with it, then all i have to do is find a stock that has 70 or 80 or above correlation .... however, given a list of stocks... how does it find all the permutations of correlations between pairs?

If anyone can help me get started without using pairtrade finder, i would really appreciate it.

I want to be able to use the excel sheet to find pairs to trade, then enter those pairs into my Tradestation watchlist, and watch them on charts manually since i have added my own filters...... but before i can even backtest it, i really need to figure out how i can find pairs and correlations without using pairtrade finder.

if anyone can help, i would be greatly appreciate it
More...

Yo Chief,

You need to get about 60 days (or more if you want longer correlations) of back history of <b>daily opens & closes</b> for any stock you want to pair against another (compare its correlation to another)...

Then you can do a correlation check if any stock versus another stock by using the correl function in Excel (or in a Microsoft Access query)...

Here are some links to web pages that talk about the Correl function and using it...

=CORREL(data set 1,data set 2)

http://ezinearticles.com/?Correlation-Measurements-with-Microsoft-Excel&id=921753

http://phoenix.phys.clemson.edu/tutorials/excel/stats.html

http://office.microsoft.com/en-us/excel/HP052090231033.aspx

http://www.ce.memphis.edu/1112/excel/correl.htm

http://pirate.shu.edu/~wachsmut/Teaching/MATH1101/Relations/correlation.html

http://en.allexperts.com/q/Excel-1059/Excel-CORREL-formula.htm


scrolll way down for this one...
http://www.experts-exchange.com/Programming/Languages/Visual_Basic/Q_20270756.html

http://support.microsoft.com/kb/828129

its a full start... hope this helps...

edge...


HAVE STOP <img src="http://www.enflow.com/p.gif">WILL TRADE
 
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