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Yes,
pairs trading (IMO) is all about hedging. If you are doing pairs
trading, you are hedging yourself against overall market moves. If
you had 50 pairs open on Sept. 11, 2001 and woke up to the horror of that day,
you could probably relax. You might be interested in knowing that
when the market opened on 9/17, my pairs trading fund was up 1.2% since the
close before 9/11. I was fairly relaxed about that fund and
anticipated a maximum profit/loss of 2%. I was happy with the 1.2%,
especially since the direction was right.
<BLOCKQUOTE
>
<FONT face="Times New Roman"
size=2>-----Original Message-----From: dingo
[mailto:dingo@xxxxxxxxxx]Sent: Friday, April 18, 2003 6:27
PMTo: amibroker@xxxxxxxxxxxxxxxSubject: RE: [amibroker]
Pairs Trading (a definition for Dingo)
<FONT face=Arial color=#0000ff
size=2>Thanks Chuck!
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>Tonetti's was a little terse.. 8-)
<FONT face=Arial color=#0000ff
size=2>
You
mentioned that you work with hedge funds: Could pairs trading be
categorized as a "hedge" strategy?
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>d
<FONT
face=Tahoma size=2>-----Original Message-----From: Chuck
Rademacher [mailto:chuck_rademacher@xxxxxxxxxx] Sent: Friday,
April 18, 2003 5:57 PMTo:
amibroker@xxxxxxxxxxxxxxxSubject: [amibroker] Pairs Trading (a
definition for Dingo)
<FONT face=Arial color=#0000ff
size=2>I'll have a go at defining pairs trading for you.
<FONT face=Arial color=#0000ff
size=2>
To
me, there are two different kinds of pairs trading (fundamental and
technical).
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>Before I get into that, however, I'll start by telling you that pairs
trading is NOTHING MORE than buying one stock and shorting another.
Usually, the dollars invested would be the same for each
stock.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>Fundamental pairs trading would be based on YOUR INTERPRETATION of
the fundamentals for those two companies. If you spent the time
to review the annual reports for Ford and General Motors, for instance, you
might decide that FUNDAMENTALLY Ford should outperform General Motors over
the next six months. So, you would buy Ford and short General
Motors. Your trade, in theory, should not be affected by any
move in the entire market or even the automotive sector. At the
end of the six-month period you would liquidate both
positions.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>Technical pairs trading is a little more complex. Again,
you would be buying one stock and shorting another. Most
pairs traders might only trade a "pair" that were in the same sector, but
that isn't necessarily a requirement. The idea here is that you
find two stocks whose average daily returns move very much in
unison. I won't get into the math for determining this, but I'm sure
you get the picture. Let's say that you discover that
the daily returns for Ford and General Motors almost aways
move together. You also observe that if the returns move
apart.... they tend to come back together. You also
observe the maximum amount that they varied over some period of
time. When you see them move apart by that amount again, you
simply short the one with the higher returns and buy the one with the lower
returns. Finally, you just wait for the returns to come back together
and liquidate both positions. Again, the theory is
that any major move in the overall market has no effect on your net
position.
<FONT face=Arial color=#0000ff
size=2>
I
might add that many, if not most, of the professional fund managers using
pairs trading haven't done very well over the last quarter, generating
negative returns for their investors. I've been pairs
trading for two years, netting just over one percent per month for investors
in that particular fund. I can also tell you that, in my
opinion, any attempt at fundamental pairs trading is doomed for
failure.
<BLOCKQUOTE
>
<FONT face="Times New Roman"
size=2>-----Original Message-----From: dingo
[mailto:dingo@xxxxxxxxxx]Sent: Friday, April 18, 2003 3:13
PMTo: amibroker@xxxxxxxxxxxxxxxSubject: RE:
[amibroker] Re: Dynamic Indicators Poll -- VOTE AGAIN,
PLEASE
<FONT face=Arial color=#0000ff
size=2>Could you define "pairs trading" please?
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>Thx!
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>d
<FONT
face=Tahoma size=2>-----Original Message-----From: Fred
[mailto:fctonetti@xxxxxxxxx] Sent: Friday, April 18, 2003
3:08 PMTo: amibroker@xxxxxxxxxxxxxxxSubject:
[amibroker] Re: Dynamic Indicators Poll -- VOTE AGAIN,
PLEASEYes. I know. See my previous post, but
for example I don't want to have to write my own Stdev routine for
variable periods where it would require a For loop or a script to
get it done. As I've said before, IMHO the best thing about AB
today is it's speed and the LAST thing I want to do is slow it down
w/For loops if I don't have to. The best thing about the future of
AB is of course the support & potential enhancements and I'll be
happy to take the latter in whatever order Tomasz thinks best with
my own personal preference at the moment being the fixing of
position size transactions being automatically limited to total
available cash followed by some other aspects of portfolio trading
i.e. pairs and ranking etc.--- In amibroker@xxxxxxxxxxxxxxx,
"DIMITRIS TSOKAKIS" <TSOKAKIS@xxxx> wrote:>
Fred,> take a look at> >
per=10+Cum(1)%20;//variable period from 10 to 29>
StochKa=MA(100*(C-LLV(L,per))/(HHV(H,per)-LLV(L,per)),3);>
StochDa=MA(MA(100*(C-LLV(L,per))/(HHV(H,per)-LLV(L,per)),3),3);>
Plot(StochDa,"",1,1);Plot(StochD(),"",4,8);> > for
example.> DT> --- In amibroker@xxxxxxxxxxxxxxx, "Fred"
<fctonetti@xxxx> wrote:> > Tomasz,> > >
> I agree completely that these are two different areas ... to me
> they > > are both important with (1) being higher
priority then (2) ...> > > > With regards to (1) and
more specifically those functions like ATR > > that
require multiple arrays ... I understand and in the case of > ATR
> > I'm not sure I care if this is even dealt with as again
it's simple > > enough like my example w/MACD to create
ones own ATR with a Foreign > > symbol using straight
AFL. > > > > In the case of a stochastic
though it's clearly valid to calculate > it > > as
> > > > 100 * (C - LLV(C, n)) / (HHV(C, n) - LLV(C,
n)) > > > > as opposed to using highs and
lows. However here again I'm not > sure > > I
care as it's easy enough to do these in straight AFL with n being
> > time variant since HHV and LLV are already have the
capability of > > being time variant.> > >
> > > --- In amibroker@xxxxxxxxxxxxxxx, "Tomasz Janeczko"
> <amibroker@xxxx> > > wrote:> > >
Hello,> > > > > > As I mentioned in the other
post of mine there are > > > TWO INDEPENDENT areas:>
> > > > > 1. Make input data array available for
functions like RSI> > > 2. Make second argument (period)
accept array too (variable > period).> > > >
> > Somehow people mix those 2 areas.> > > >
> > Fred speaks that he wants all functions to cover at
least> > > area (1).> > > > > >
The posts of Mark refer to area (2).> > > > >
> Let me show you example:> > > > > > RSI(
period ) - this function has no input data array (uses CLOSE
> > array> > > indirectly) and accepts static
period> > > > > > (1) RSIa( ARRAY, period ) -
this function accepts input data > array > > but
accepts> > > only static period> > > >
> > (2) RSIa( ARRAY, dynamic_period ) - this function
accepts input > > data array > > > and
accepts both static and dynamic_period. > > > (NOTE:
Current version of AB does NOT support this RSIa 'flavour' >
> yet)> > > > > > > > > As to
(1): implementation of this is relatively easy.> > > There
is one caveat however: many analytical functions> > > in
fact use MORE than one input array. For example Stochastics
use> > > Close, Open and High arrays as inputs.>
> > ATR too needs OHLC, not only close.> > > >
> > As to (2): not every function is suitable for this kind of
> > operation. Although > > > theoretically it is
possible to rewrite every function to accept > > such
'variable> > > periods' the practice shows that
transformations that are > recurrent > > in
nature> > > (exponential averages for example) are
extremely 'sensitive' if > > parameter(s)> > >
change to fast. A kind of "frequency modulation" effect appears >
> that may produce> > > distortions therefore one should
be careful working with adaptive > > systems> >
> using recurrency-based transformations.> > > >
> > Best regards,> > > Tomasz Janeczko> >
> amibroker.com> > > ----- Original Message -----
> > > From: <uenal.mutlu@xxxx>> > > To:
<amibroker@xxxxxxxxxxxxxxx>> > > Sent: Friday, April
18, 2003 5:28 PM> > > Subject: Re: [amibroker] Dynamic
Indicators Poll -- VOTE AGAIN, > > PLEASE> > >
> > > > > > > And IMHO also > >
> > LINEARREG, LINREGSLOPE, TSF > > >
> should be removed from your list. Please> > > >
check the remaining too... Test it in AFL editor (it will >
inform > > you> > > > via a small hint window
about the params after you type the > > opening
brace).> > > > UM> > > > > >
> > ----- Original Message ----- > > > > From:
<uenal.mutlu@xxxx>> > > > To:
<amibroker@xxxxxxxxxxxxxxx>> > > > Sent: Friday,
April 18, 2003 5:21 PM> > > > Subject: Re: [amibroker]
Dynamic Indicators Poll -- VOTE AGAIN, > > PLEASE>
> > > > > > > > > > > > Hi
mark, > > > > > can you clarify BBANDBOT and
BBANDTOP; > > > > > IMHO they both already do accept
user defined arguments> > > > > for all the 3
possible parameters to them. > > > > > UM>
> > > > > > > > > > > > >
> ----- Original Message ----- > > > > > From:
"markf2" <feierstein@xxxx>> > > > > To:
<amibroker@xxxxxxxxxxxxxxx>> > > > > Sent:
Friday, April 18, 2003 4:03 PM> > > > > Subject:
[amibroker] Dynamic Indicators Poll -- VOTE AGAIN, > >
PLEASE> > > > > > > > > > >
> > > > > In Message 38132, Tomasz pointed out that HHV,
LLV, > HHVBars, > > LLVBars,> > > >
> > DEMA, TEMA, MA, WMA, REF, and SUM already work with
dynamic> > > > > > parameters. When I updated
the poll to reflect this, ALL > > votes were> > >
> > > lost so please vote again if you're still interested,
LOL.> > > > > > > > > > > >
<A
href="">http://groups.yahoo.com/group/amibroker/surveys?id=1071266>
> > > > > > > > > > > I apologize
for the confusion. The fact that the above > >
indicators and> > > > > > functions accept dynamic
parameters was reflected in > release > > notes
but> > > > > > not in the 4.30 users guide that I
used to make the poll. > > The fact> >
> > > > that so many of you voted for them shows you didn't
know > > either, and> > > > > > I've
asked Tomasz to include this information in the next> > >
> > > documentation update.> > > > > >
> > > > > > Mark> > > > > >
> > > > > > "No good deed goes
unpunished."> > > > > > --Steve Karnish>
> > > > > > > > > > > >
> > > > > > > Send BUG REPORTS to
bugs@xxxx> > > > Send SUGGESTIONS to
suggest@xxxx> > > >
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