Re: [amibroker] Pairs Trading (a definition for Dingo)

["Ara Kaloustian" <ara1@xxxxxxxxxx>]

Yuki,
 
If you buy and short similarly ranked producs in 
same industry, how do you get confident that one of them will be between 101% 
and 150% ( why not lower ?)
 
Also, what king of products do you pair trade? 
Stocks, currencies etc?
 
Thanks
 
Ara
<BLOCKQUOTE 
>
  ----- Original Message ----- 
  <DIV 
  >From: 
  Yuki 
  Taga 
  To: <A title=amibroker@xxxxxxxxxxxxxxx 
  href="">Chuck Rademacher 
  Sent: Saturday, April 19, 2003 4:46 
  PM
  Subject: Re: [amibroker] Pairs Trading (a 
  definition for Dingo)
  Hi Chuck,Saturday, April 19, 2003, 6:56:52 AM, you 
  wrote:CR> MessageI'll have a go at defining pairs trading for 
  you.CR> To me, there are two different kinds of pairs trading 
  (fundamental andCR> technical).CR> Before I get into that, 
  however, I'll start by telling you that pairsCR> trading is NOTHING 
  MORE than buying one stock and shorting another.CR> Usually, the 
  dollars invested would be the same for each stock.Pair trading is one 
  of my bread-and-butter systems.  But I don'tinvest the same amount of 
  yen in each issue, ever.  I buy and shortthe same number of 
  shares.The pairs I use are always in the same industry, and usually 
  pairsthat are very close to each other in terms of ranking in 
  thatindustry.  Then, it's simply a waiting game, watching for the 
  priceanomaly between the two issues that is virtually certain to 
  arise.I chart these based on both absolute price differential, 
  andpercentage price differential.  When triggered, these trades 
  producesome of my biggest profits, and often over surprisingly short 
  timeframes.  They don't trade very often, which is their only 
  drawback,but they can fatten your wallet in a big hurry, and of course 
  withsubstantially less risk than straight long or short 
  positions.To me, pair trading (and the observations I've had while 
  doing it) isthe easiest evidence to refute the contention made by some 
  that themarket is somehow efficient (if the recent bubbles in Japan and 
  theUS didn't already disabuse anyone holding this silly notion).  
  This'efficient market theory' is an absurd contention to anyone that 
  hasobserved pricing phenomena between closely ranked companies in 
  thesame business.  I'm not talking about situations where there is 
  aradical change in the fortune of one company vis a vis the 
  other,either.  I'm talking about mature businesses where the value 
  ofcompany A simply oscillates over the years between 101 percent of 
  thevalue of company B and 150 percent of the value of company B.  I 
  havepairs that make this round trip again and again, every few years, 
  orless. It just takes observation, and 
  patience.Best,Yukimailto:yukitaga@xxxxxxxxxxxxxSend 
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