Currently on INTC/ALTR (higher correlation + high fundamental skew- earnings expectations and profit margins). Considering TXN/XLNX (analogs). On GLG/MDG as of close. Earnings can be the best time to enter these spreads- IF volaitlity breaks your way. My biggest wins have been during earnings.
Pairs Trading Strategy Model
- Thread starter Neutral_Al
- Start date
Hi Avaturk,
INTC/ALTR looks good. INTC/XLNX was recommended by Pairstrading.com a couple of days ago. Kind of same thing. Earnings on Intel would be beneficial if they were bad. XLNX and Altera have a higher Beta so they would fall harder than INTC. If earnings are good you will see the same yield on both stocks IMHO. GLG/MDG looks strong. Although RSI14 is 86.89, I would wait for 10DMA cross from above. What is your stop loss/profit objective on that?
Al
haven't been here recently too. our strategy started early december live trading and is up 3.65% by yesterday evening. is much better than tests indicated but it seems that this year end was good for all mean reversion strategies.
we are moving towards fundamental analysis.
I am thinking of something like pairing a small cap and a big cap on fundamental and technical data. the idea is that small caps should offer more upside. thus I actually try to capture the different risk profile between the two. I have not hear about that in pairs trading so far - anybody ever tried such thing.
at the same time we are starting with intraday testing. we prepared our test software and should be able to start tests today or tomorrow. in pairs trading context i am most curious about very similar pairs like fnm-fre. i think there must be a way to profit from this obvious pair if you are not too big and well equipped.
peace
we are moving towards fundamental analysis.
I am thinking of something like pairing a small cap and a big cap on fundamental and technical data. the idea is that small caps should offer more upside. thus I actually try to capture the different risk profile between the two. I have not hear about that in pairs trading so far - anybody ever tried such thing.
at the same time we are starting with intraday testing. we prepared our test software and should be able to start tests today or tomorrow. in pairs trading context i am most curious about very similar pairs like fnm-fre. i think there must be a way to profit from this obvious pair if you are not too big and well equipped.
peace
Hi ChrisM,
I have been trading for over 12 years now. I am doing pairs trading exclusively since September 2002. I use my own technical system based on price correlation analysis. I looked at the yield model as well. The price model is easier to compute and it gives you better stats ( at least in my case).
Believe it or not, mixed pairs produced better stats and actual results. Last 4mo record: 86 trades/ 72 gains/ 14losses. cumulative gain 8.86%. Average per month +3.48%.
Same sector pairs: 32 trades/ 18 gains/ 16 losses. cumulative gain 2.01%. Average per mo +0.64%. The problem is that the pairs approach the stop loss before they revert. So the assumption that the same sector pairs perform better is wrong, I guess.
What are your strategies? Are they purely technical or fundamentals-based?
Al
Neutral Al,
I also switched to pairs trading about a year ago. Overall positive results. However, I've generally not had stop loss points. I've either added to my position or waited it out.
For your trades in which you have gotten stopped out, have you ever gone back to see how the pair performed longer term? I've had a few loosers that ultimately would have been winners had I hung on and plenty of times I've recovered from a loss and sold at breakeven only to see shortly afterwards that I should have hung on.
I also switched to pairs trading about a year ago. Overall positive results. However, I've generally not had stop loss points. I've either added to my position or waited it out.
For your trades in which you have gotten stopped out, have you ever gone back to see how the pair performed longer term? I've had a few loosers that ultimately would have been winners had I hung on and plenty of times I've recovered from a loss and sold at breakeven only to see shortly afterwards that I should have hung on.
