Pair Trading Strategy Journal

First, I did purchase pairtradefinder. I thought it could help me get started in pairtrading...not just in finding pairs but in signals in and out. So far I like it although there are aspects of it I find frustrating and would like to see improved.

So while i plan on using pairtradefinder, there are a few other options for the correlations you want.

First, the prior post mentioned you can download data into excel from yahoo end of day and use the correlation function. For what it's worth the google spreadsheet online have a function to extract data from google historical finance pretty easily but i don't know if they have a correlation function.

Second, there is a web site (i'm trying to find the link) that is free where if you know you have one stock and want to see the correlation you put that symbol in and it gives you a complete list. if/when i find the link i will edit this post or upload it. but you have to look this up one symbol at a time.

Finally, I have for years used a program called AmiBroker, which is a charting platform with a robust programming langugage that is pretty cheap for end of day (around $200). if you know some programming it is easy to build a routine that cycles through all the stocks to compare to one you enter or to compare all to all (although it runs for a while). I did this but decided to stay with pairtradefinder for now since i was less confident about my abiltiy to enter/exit then i was to find the pairs.

Mike
 
Yobo...

Assuming you are following this thread... i was curious what your thinking was on having individual RSI's above 40 and under 60.... Could you share your thoughts on why you added this as a criteria to your trades?

Thanks

Mike
 
Quote from mlsignups:

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
More...

yes we have the same settings, except I have layers set at 2.00, 2.30, 2.60 and the SPG/TCO entry was on the 2 layer signal. I would say in the HP/UNT trade the overall correlation is increasing, I don't see a downtrend. Im not sure I understand your last question of ratio chart was still so high?
 
thanks Johnny...

regarding HP/UNT at least on my screen the correlation was over 99% since Octopber (over 3 months) and recently looks like it dropped under 99% to mid 98s. I know that is probably insignificant but on my chart it looks like a bit of a downslope ; emphasizing " a bit".
 
Quote from mlsignups:

Finally, I have for years used a program called AmiBroker, which is a charting platform with a robust programming langugage that is pretty cheap for end of day (around $200). if you know some programming it is easy to build a routine that cycles through all the stocks to compare to one you enter or to compare all to all (although it runs for a while). I did this but decided to stay with pairtradefinder for now since i was less confident about my abiltiy to enter/exit then i was to find the pairs.

Mike
More...

Hi Mike,

I have Amibroker also. I thought about using it for finding pairs as well and noticed there was a recent thread on the user group about pair trading. But I must say that I have never gotten good enough with the program to feel confident and I would need a lot of help programming something of this nature. It would seem like a job for Graham Kavenaugh (sp?). You obviously are well ahead of me with the program.

That said, I've tried to look at pairs on some basic charts I've set up to see if anything jumps out and have been kind of thinking about anything that might exist that could give an edge, like other ratios of indicators which would be fairly straight forward with Amibroker.

I haven't given it serious consideration but just a thought in the back of my mind. So far I'm ahead of the game using Pairtradefinder. I just hope is isn't s*** luck.
 
Quote from chiefraven:

hey guys,

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

You can find a comprehensive list of the top correlated pairs in the market, as well as stocks that correlate well to a specific stock of your choice, at
http://impactopia.com/

While being familiar with this resource, I have still purchased the Pairtrade Finder software.
 
I haven't gone through the 95 pages of this thread yet so please excuse me. But, from the few that I did read, this sounds very interesting. Could you tell me if there's some class that someone could take to get a good start in this? I'm an experienced trader but pairs trading is somewhat new to me.
 
First, Impactopia was the site I knew of but couldn't find today. I think registration is (or was) free when I registered some time back.

Second, this has been a great journal and I don't want to get anyone sidetracked so i won't go down this path too much longer if it is not needed or desired.

I did some interesting stuff with AmiBroker today. It is not designed out of the shoot for pair trading but it is easy to compare tickers and/or display them and ratios. I was able to recreate the charts that show up with a pair in pairtradefinder. I was actually able to recreate the entry and exit signals of most of the trades (not sure if i can catch them all) but out of deference to the folks at pairtradefinder won't go into what I found.

As I mentioned in my last thread i purchased the software (pairtradefinder) and intend to use it, so this is not a knock on them but I thought AmiBroker might help me refine my thinking as follows.

Assuming I have recreated the entry and exit signals I can now back test against a large basket of stock pairs at once for P&L. I can also now add some other criteria. For instance, since we want the correlation to be going up, I could add as a criteria to my backtest that I want correlation to be > 90% and that I want correlation to be greater than an x day moving average of correlation (so I know it is on the upswing). I could also add that the correlation for the last x days is > than x. There was also a post early by another contributor who talked about RSI of one stock being above 40 and another below 60. I can now add that parameter and backtest that to see how the results (P&L) change.

So my thinking is I can take what i've learned from their system and test various permutations of add-on criteria to see if any of these criteria improve the results.

IF I figure some of this out my thinking would be I can then use pairtradefinder during the day to identify the entries, but would then have more information about which ones to select for entry.

As I get time over the next few weeks i'll post some findings unless Johnny says this is too far off track for his journal.

Mike
 
Quote from chiefraven:

... how does it find all the permutations of correlations between pairs?
More...
This site can do the permutations. If you are a programmer you can take the code in the source of the webpage. But tince you only want to do pairs of two stocks it's a simple algo;
for all stocks, check all stocks except with itself.

If your a programmer it's all easy, I could do that in a couple hours.
1- Look for potential stock on Yahoo stock screener (Java)
2- Get data from Yahoo
3- Filter the data (critical). All stocks you compare need to have the same days...
4- For all pairs combinations calculate corell
5- Order and output

If you want a easy thing from Excel you need to do some work, unless you can program the VB sub function.
Put the data in columns in a page (already filtered of course, lol).
On another page, do a matrix
1 2 3 4 5 6 7 8 9 ...
1 B2...
2 ...
3
4
5
...

In cell B2, you do nothing cuz it would be 1 against 1.
In cell B3 you want to do the correl between stock 1 and 2.
Do this for every combination.
The way to look in the other page: use the funtions index(), vlookup(), hlookup() in Excel
On one sheet you can only put 256 stocks and if you want more than that it complicate things. This is why Excel is not the tool.
 
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