Why is not everyone doing this?

Outlander said:
I've read an article
http://www.nasdaq.com/article/dont-...a-simple-way-to-profit-cm254669#ixzz47dTlvGmG

Although I knew about statistical arbitrage long time ago, I did not realize someone can still profit from pair like coco-cola and pepso. Since those big fish probably has already wiped out all the easy opportunities.

After I read the article, I decided to give it a try. But before I start, I'm wondering it's so obvious why is not everyone doing this?
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This article is from 2013...I'm also wondering if traders are still having success with this...use to hear a lot that traders were making $$$$$ doing this. Not for me...though. Traders with a lack of capital couldn't do this?????
 
Outlander said:
I've read an article
http://www.nasdaq.com/article/dont-...a-simple-way-to-profit-cm254669#ixzz47dTlvGmG

Although I knew about statistical arbitrage long time ago, I did not realize someone can still profit from pair like coco-cola and pepso. Since those big fish probably has already wiped out all the easy opportunities.

After I read the article, I decided to give it a try. But before I start, I'm wondering it's so obvious why is not everyone doing this?
More...

Brokerages, exchanges and trading shops love to promote pairs trading, because they'll have you churning away your account with multiple positions searching for an illusive profit that will always seem just out of reach.
 
LTCM practiced arbitrage ...
Without leverage it's not worthy.
Without the states backing you it's too risky.

LTCM.png

Love this chart
 
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It works till it doesn't work, say two stock spread apart, you buy one and sell the other, one you bought has bad news come out and takes twenty dollar drop and the other has no news or higher earnings, so you can lose much more than you realize, and only takes one or two of them to hurt. Although I scalp in Index futures, going for couple quarters to couple bucks considering risk is much too high for this type of trading I consider it too high risk for me. Just easier trading off weekly chart and hedged when I put them on is safer for me going for long term trades.

Learn about option trading, much more bang for the buck.
 
Outlander said:
I've read an article
http://www.nasdaq.com/article/dont-...a-simple-way-to-profit-cm254669#ixzz47dTlvGmG

Although I knew about statistical arbitrage long time ago, I did not realize someone can still profit from pair like coco-cola and pepso. Since those big fish probably has already wiped out all the easy opportunities.

After I read the article, I decided to give it a try. But before I start, I'm wondering it's so obvious why is not everyone doing this?
More...

For exemple ...
Since you talk about coco and pepso.
Just imagine that the price diverge then you arbitrage.
Since you got to earn a living, the more it diverge, the more you leverage.
You're saying to yourself: F*ck Em' I'll tell my GF for to get the new Porsche !
Right Now ! Cause that's gonna be the most lucrative trade ever !
F*ck Soros. Livermore & all these tiny penis, @$$ kis$sers.
However the next morning. The front FT page is yelling:
COCO SELL HIS SHARES OF PEPSO
 
Picking up pennies in front of a bulldozer. Like the poster above said, it works until it doesn't work. LTCM is the perfect example.
 
it does work. Just look at intraday pair ratio charts - greater reversion tendency than either leg alone.

There are also long term pair opportunities. But on the long term I prefer trend following rather than reversion ie. beta hedged divergence trades that can go on for weeks or months.

The thing is, whether intraday reversion or long term trend, the equity curves tend to not look great per strategy (ie. per pair, per rule set). The trick is to have a whole lot of these on simultaneously to get a net smooth portfolio. It tends to get smooth in the aggregate portfolio because of typically zero correlations among the pair strategies. But just make sure the individual pair strategies have at least some minimal positive profit expectation.
 
thaitye said:
Picking up pennies in front of a bulldozer. Like the poster above said, it works until it doesn't work. LTCM is the perfect example.
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"Picking up pennies in front of a bulldozer" is a term used to describe selling options for premium. It doesn't apply to stocks.



:)
 
IMO .......... the best way to trade a KO/PEP arbitrage is to re-balance once a year:


  • Buy $1000 worth of KO.
  • Buy $1000 worth of PEP.
  • Re-balance once a year to bring the dollar ratio back to 50% each.




:)
 
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