Top Pair Stocks for Pair Trading

[pairtradepro]

Here the performance of Private Sector Banks pairs from July 2014 to 2015 this month.

So if you had taken all the 98 trades in last 1 year and traded 1 lot in F&O, you would have made excess of 6 Lakhs. 84 winners of the 98 trades.

Here the Equity curve of the profits.

 

[tvtaddy]

Such other pairs will be tvs and tatamotors, tata motors and eichermotors and now tvselectronics and bajaj electronics. Many such pairs can be formed but sucess lies on choosing a under valued stock over others.

 

[rkkarnani]

In Last 2 Weeks, MACD, RSI, AD INDICATOR, CCI, Willilams all have given buy signal in Tatamotors, but tatamotors has performed very badly, so from here on all these technical indicators can be termed as useless? I don't understand what sort of analysis is this. For any trade u need to have either a deviation wise stop loss or a percentage wise exit.

Thanks for taking out time. Let us not talk about all the Indicators termed useless by you. We are not here to judge their performance. They also do not have any use in present set up.

Agreed that using a SL would have given an early exit and limiting the loss in trade. Again Loss in trade is also acceptable as one can not have a 100% trades giving profit.

Posts are not to malign or criticize your Software, its more about understanding it. And I genuinely believe that such interaction shall only help you improve the performance of the Software.

Your replies show a little bit of lack of patience.

Do elaborate on "How does the software calculate deviation?" and How is SD calculated between 2 stocks?" You may refer me to some link on web !

 

[rkkarnani]

PTP, Kindly look at my 15th June Post and post your views.

 

[pairtradepro]

Thanks for taking out time. Let us not talk about all the Indicators termed useless by you. We are not here to judge their performance. They also do not have any use in present set up.

Agreed that using a SL would have given an early exit and limiting the loss in trade. Again Loss in trade is also acceptable as one can not have a 100% trades giving profit.

Posts are not to malign or criticize your Software, its more about understanding it. And I genuinely believe that such interaction shall only help you improve the performance of the Software.

Your replies show a little bit of lack of patience.

Do elaborate on "How does the software calculate deviation?" and How is SD calculated between 2 stocks?" You may refer me to some link on web !

I am not terming them useless, they have been useful for decades and they continue to do so. As per the analysis of the other user I asked whether it can be termed so. When I posted the reply I too felt whether I am bit impatient and you're completely right about that. Deviation is calculated based on weighed mathematical deviation formula of the moving average - prices.

 

[pairtradepro]

PTP, How do we avoid this thing : "To personally decide the probability" !! We need to base it on something other than the gut feeling! On some parameters !

Must add that you have done a lot of hard work in putting up the pair trade website! I feel its one of a kind in Indian Market scenario! There are websites catering to US and other markets for pair trading but not for Indian mkt scenario. Trust you will strive to improve the same with inputs from people like Smart_Trade and others here on TJ !

You don't need to personally decide the probability of pairs. Just trade all the pair signals in a year in Private banks alone. You will make a complete killing in profits. People make mistakes by trading pairs of tvs-tatamotor, bajaj-hero and other pairs - it's all very risky because, though they are all in same sector the working and the financials of the company are completely different. If u definitely want to try them then it should be done only at very high deviation.

Whereas in case of banks or financials they are governed by the same RBI rules and their performance is similar. 5 year from now you can definitely tell both icici and axis would have definitely gone up more or less by the same percentage. So basically they are fundamentally related pair, which gives short term arbitrage between them that are exploited by traders to cash in profit.

If u consider maruti-m&m, they look like they are related but they are not so. Maruti focuses mainly on cars but m&m is focusing on tractors and suvs. YEN decides maruti's performance. 5 years from now u can't tell whether maruti and m&m would have gone up together. Same way with TVS. For more than 4 years tvs was underperforming other 2 wheelers. So pairing these stocks doesnt have any fundamental backing. It might work some times and fail sometimes.

 

[umeshmandal]

You don't need to personally decide the probability of pairs. Just trade all the pair signals in a year in Private banks alone. You will make a complete killing in profits. People make mistakes by trading pairs of tvs-tatamotor, bajaj-hero and other pairs - it's all very risky because, though they are all in same sector the working and the financials of the company are completely different. If u definitely want to try them then it should be done only at very high deviation.

Whereas in case of banks or financials they are governed by the same RBI rules and their performance is similar. 5 year from now you can definitely tell both icici and axis would have definitely gone up more or less by the same percentage. So basically they are fundamentally related pair, which gives short term arbitrage between them that are exploited by traders to cash in profit.

If u consider maruti-m&m, they look like they are related but they are not so. Maruti focuses mainly on cars but m&m is focusing on tractors and suvs. YEN decides maruti's performance. 5 years from now u can't tell whether maruti and m&m would have gone up together. Same way with TVS. For more than 4 years tvs was underperforming other 2 wheelers. So pairing these stocks doesnt have any fundamental backing. It might work some times and fail sometimes.

Sir, Can we assume that one needs to trade in Pairs only in BANKING SECTOR? Hopefully that is not the case. So do post other Pairs that are viable for Pair trading.
Also , in your earlier Post you had posted that one needs to decide the probablility of which stock would move up or down, but you have changed your stance! Have anything been changed in the software? Does the software tell this now ?
You have sited the different attributes of various pairs which though in the same sector but are not really pairs ! Would that be also true for banking as some banks have exposure to rural india than others! ICICI has minimum exposure to rural sector but still can we pair it with any other bank to trade?

My basic question is : How to decide which two are good pairs to trade! Do we have any option in the software to give a CONSOLIDATED figure of any Pair analysed historically?

 

[umeshmandal]

You asked how I use options with pair. A small example
Lets say there is Long ICICI and Short Bank Nifty Signal. I will decide which has more probability. If i feel ICICI going up is more probable than banknifty falling, then I would buy ICICI fut and buy bank nifty put. I will replace the doubtful leg with option. So when ICICI goes up by 5% and bank nifty goes up by 2%, I would have made better profit then shorting bank nifty fut. On the other hand by buying put i am reducing my risk in one leg.

If I am in this position
I would buy ICICI Fut and Sell ICICI High strike
and buy one Bank Nifty Put
when using options the overall risk definitely gets reduced.

Sir, Has this(marked above in bold) changed now? This is what I was referring to in my above post.

 

[umeshmandal]

How would you rate Trading Pair of HDFC Bank and Nifty futures? HDFC Bank has a weightage of >4.7% in Index?

 

[umeshmandal]

Sir, On your site you have an option for Ratio Chart? What is the use of a Ratio Chart, kindly explain in a few lines.
Also How about the ability to Post a SD chart for a given Pair of Stocks ! Such chart, I feel, as per my very very limited knowledge of Pair Trading can explain the stock pair moves much more clearly !