Top Pair Stocks for Pair Trading

[umeshmandal]

Sir, On your site, the software uses the Spot value of stocks or Future value of stock while generating Historical Comparison results!?

 

[pairtradepro]

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

What i mentioned is still same. See I said that when answering to a question about using "options" in pairs trading. When using futures the question doesn't arise as we enter both legs in futures. But when mixing with options u need to take either both side in options or one leg in options. So only when using options you can use option for less conviction leg and futures for your high conviction leg. Hope I made it clear.

You can check the performance of all the pairs in the software with BACKTEST feature from 2005 to till date.

 

[mastermind007]

Why do u need to wait so long, you can use Stoploss and exit. If you had used 0.5SD deviation you could have exited within few days. You can measure performance based on a single pair. Anyone who had gone long in tatamotors in last 1 month would have burnt fingers.

pairtradepro

I did not actually trade this. This data as well as trade direction was cut-pasted from pairtradepro site's recommendation and instead of quantity is 1, I used actual lot sizes to understand the realistic P&L.

I am glad you've mentioned an additional rule of 0.5SD deviation as an additional stop loss and I am certainly not judging the site by outcome of one trade.

It seems that all Tata group shares are in doldrums off late.

 

[umeshmandal]

What i mentioned is still same. See I said that when answering to a question about using "options" in pairs trading. When using futures the question doesn't arise as we enter both legs in futures. But when mixing with options u need to take either both side in options or one leg in options. So only when using options you can use option for less conviction leg and futures for your high conviction leg. Hope I made it clear.

You can check the performance of all the pairs in the software with BACKTEST feature from 2005 to till date.

Okay sir, got it !
So all we do is act as directed by the Software! Long and Short as per analysis!
Now how would we place the SL? Would it be only at EOD that we get to know that the SD is now 1.5 and that we have to CLOSE both the legs the NEXT DAY ! OR we get some values of Spread that would enable us to exit the moment 1.5 SD is hit!!?
Also kindly confirm that the values given are for Cash stocks and not Futures. And in particular about the Nifty Value used in the software!
Thanks for your time.

 

[pairtradepro]

Okay sir, got it !
So all we do is act as directed by the Software! Long and Short as per analysis!
Now how would we place the SL? Would it be only at EOD that we get to know that the SD is now 1.5 and that we have to CLOSE both the legs the NEXT DAY ! OR we get some values of Spread that would enable us to exit the moment 1.5 SD is hit!!?
Also kindly confirm that the values given are for Cash stocks and not Futures. And in particular about the Nifty Value used in the software!
Thanks for your time.

During market hours the SD gets updated. You can keep SL on EOD closing basis. If you want to close on current day then you can check the SD value at 3.15 and close that day itself. Or close on next day open. Nothing much changes on next day open because u are market neutral. Sport prices are used.

 

[sahil007]

hi,please explain this calculation as i am new to this....deviation method which is shown clearly

 

[iluvparixit]

To answer your first question Why I need other pairs? throughout the year we cant expect deviations to occur between the stocks in the pairs. so if we have more reliable pairs then will have more trades per year. thats it.

regarding my strategy. this is the tool i use.

it is based on the mostly used SD2.5 strategy. when the short term deviation between two scrips goes above 2.5 we have to initiate and closed down the position when the deviation revert back to 1.5. this is the conservative method that i follow. some traders wait till 1.0 to 0.5 for bigger profit. 2.5/1.5 is the time tested range.

I took a month's subscription of the pairtradepro.com service. The most important thing to note in this service is that the series on which the standard deviation is computed is a price ratio series, i.e., price of symbol 1/price of symbol 2 (You can actually note this even without subscribing to the service ). The important part - in statistical terms, the ratio of 2 random walks is not a stationary series. Hence when the price ratio moves away by more than 2 or 2.5 standard deviations from the 200 (or any other value) day rolling mean of the price ratio, there is no statistically grounded reason to assume that it will revert to that mean. Any profits realised based on the price ratio strategy are purely based on chance and not in sound statistical theory. Also, prices used to compute the price ratio are the 'Close' prices of the respective symbols, which is arguably not as effective as using last traded price, which is what the trader is expected to buy/sell at when trading using this pair strategy on EOD basis.

 

[Nikhil Chawla]

sir where is the watchlist, I am not able to find it

 

[lethalstriker]

Does anyone knows how to get the last 5 year data of the stocks. I think KITE zerodha API is a good option but don't know about the authentcity of data. Can anyone confirm any other sources?