Pair Trading Strategy Journal

Quote from jonnysharp:

Yes your right Don, im showing low correlation aswell, don't know how I missed that, first time Ive done that, anyway no biggie.

Closed a trade for nice profits

Sold PUK @ 12.00
Covered AXA @ 15.52

2nd time in the last month Ive made good profits on this pair, maybe time to slip back into financials with the low-risk industries in that space. Portfolio is at all time high.
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Relative to the CMP/SYT trade, I kinda liked it despite the low correlation and took a small position. The last couple of months I've noticed that pair trading in-general seems less profitable perhaps because volatility is lower. I'm wondering if using lower correlation pairs is a way to artificially introduce volatility.

One new concern, I just noticed that SYT goes ex-dividend at $1.07 on April 21. Hopefully, we'll be out by then.

Don
 
Anyone have read the book:
"The Art of The Arb" Trading Manual ?

from the site:
http://www.pairtrader.com/arb_info.html

It's quite expensive, i wonder if it worth the money.


I've got the manual and it makes good reading. Please make an offer if you'd like to buy it. I'm based in the UK , so it would need to include $20 for shipping if you're outside the UK.
 
jonny, as I've come into this thread quite late on, can you tell me what your current ROI is, approx ? Also, d'you use PTF to exit trades too ? Sorry if you've been asked these things a lot :)
 
Exited trade for profit

Sold MGG @ 19.68
Covered ETE @ 24.18

Il do an performance update next week, going out now, have a great weekend everyone.
 
Quote from Don87109:

One new concern, I just noticed that SYT goes ex-dividend at $1.07 on April 21. Hopefully, we'll be out by then.

Don
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Thanks for the note about ex-dividend. I have been checking for earnings releases, especially this month, but not dividend dates.

Walt B
 
Anyone knows if the economatica pairtrading module, is any good?

http://www.economatica.com/longshort.html

Seems an excelent tool:

Screening

"
In addition to analyzing user-selected pairs, this module can perform screening. Through this process the system will screen through thousands of pairs and identify those that meet the user's criteria.

Filtering criteria consists of the following types:
- Find pairs whose ratio is greater than N standard deviations from the mean
- Find only non-directional pairs (low beta)
- Find only intrasector pairs
- Find only pairs of different classes of shares of the same company
"
 
Quote from Don87109:

Relative to the CMP/SYT trade, I kinda liked it despite the low correlation and took a small position. The last couple of months I've noticed that pair trading in-general seems less profitable perhaps because volatility is lower. I'm wondering if using lower correlation pairs is a way to artificially introduce volatility.

One new concern, I just noticed that SYT goes ex-dividend at $1.07 on April 21. Hopefully, we'll be out by then.

Don
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FWIW - I got out of this trade on Friday with a small profit. This morning the divergence got bigger than I have seen before so I decided to jump back in and pay the dividend if necessary.

Luckily, IB had no SYT shares available to short so I couldn't get back in. As I type the divergence just keeps getting bigger and bigger so I'm pretty happy I didn't get in although I suspect it can turn around and converge just as fast.

I guess it's possible some of the outstanding short shares may be called. Or I guess the cost to borrow these shares may get more expensive.

Just some thoughts for those thinking of getting into this trade.

Don
 
jonny,

As a more experienced PTF user than I, perhaps you can comment on a post I put on their forum. I'm currently trialling their software and from an indicator standpoint, its so far looking good. What I can't understand is their 'back office' design. Here is a quote from my forum post:

"Surely when an Enter or Exit Trade appears one should be able to right-click the pair (or link from an icon at the top) and enter or exit a trade by putting in the price you obtained and the number you bought. This info should then appear in the Portfolio where prices are updated as is the main screen, together with a current P&L. When you Close a trade the details should then similarly be sent to the Portfolio together with a P&L for the round trip."

Perhaps I'm missing something but your comments would be appreciated.
 
Dr Who I can't comment on the portfolio mgmt feature, I didn't like it either and Ive been using a spreadsheet the whole time to record trades and that works fine.
 
As per several requests Id thought Id do a performance update.

Start of journal: 18th August, 2008
Cut off date: 22nd April, 2009
Return: 93.73%
Annualized: 139.89%
Biggest Drawdown: 8.9%
SP500 Return: -33.4%
Outperformance: 127.13%

Using a generous risk free rate of return of 3% my sharpe ratio is 15.38 ((139.89-3)/8.9) long term stock market average is 0.40, hedge funds consider above 2.00 to be good and above 4.00 to be exceptional, so Im very happy with my risk-adjusted returns and my absolute return aswell.

Below is my a/c equity curve since starting, you can see a soft patch at the start when the market was very dislocated last year and when I didn't have my current trade filters, since then Ive improved my performance and conservatively increased my trade size.

<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=2398842>

Also attached is a pdf doc showing all my trades Ive taken exactly as Ive entered them in this journal in real time, no hindsight trades.

I really owe a big thank you to the team at pairtrade finder for sharing an incredible piece of software that actually has worked for me, it has definitely changed my life for the better.

Jonny.
 

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