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Yuki,
One more question....
I tried playing DIA / SPY pair... which worked OK
in just a short time frame (days / weeks), but the % return seems
limited.
Example: 100 shares DIA = $8,000 ......... 100
shares SPY = $8,500 (approximately). Total capital tied up $16.5K (or $8.25K on
margin)
The % return is the differential price movment ...
so relative to individual issue price movements it reduces your take (and risk)
significantly, especially when you consider paying (at least tying up your
money) for 2 items.
In short, what kind of % return (of your tied up
capital) are you getting to keep you happy
and roughly how long is a typical trade?
Have a great day
Ara
<BLOCKQUOTE
>
----- Original Message -----
<DIV
>From:
Yuki
Taga
To: <A title=amibroker@xxxxxxxxxxxxxxx
href="">Ara Kaloustian
Sent: Saturday, April 19, 2003 6:46
PM
Subject: Re: [amibroker] Pairs Trading (a
definition for Dingo)
Hi Ara,Sunday, April 20, 2003, 9:40:30 AM, you
wrote:AK> If you buy and short similarly ranked producs in same
industry,AK> how do you get confident that one of them will be between
101%AK> and 150% ( why not lower ?)Well, I track them over time
of course. And there is no guaranteethat the prices will not
actually invert. But when you see patternsrepeated over very long
numbers of years, you become confident enoughto go with them, at least
until they do not work any more. You areexposed to some risk; make
no doubt about it. There could be anindustry realignment that would upset
your apple cart. But generallyspeaking, long one and short another of
similarly ranked stocks inthe same industry is going to be less risk than
an outright long orshort. This kind of thing has been a cash cow of
mine for longerthan I care to admit.I find two standard deviations
to be a pretty safe bet on pairs thatshow little or no long-term trending
(the standard deviation linesrun fairly horizontal over a longer time
frame -- say 4-5 years orlonger). Just outside 2 is actually where I look.
You want to makethe trade actually scream for execution. I usually
wait until Istart to hear the screaming, then wait for just a little
more.AK> Also, what king of products do you pair trade? Stocks,
currencies etc?Just stocks. With currencies, I think the risk is
substantiallyhigher for this type of trade because the underlying basics
areprobably more volatile. But I would not be surprised to
findsomething like an A$/US$ pair that could be exploited. For
years,one could have exploited a C$/US$ pair, but in recent years I
thinkthat range has broken into long-unseen territory. I don't
follow theC$ at all however, so I'm not
sure.Best,Yukimailto:yukitaga@xxxxxxxxxxxxxSend
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