Pairs Trading ??? any new inputs ?

Dear Friends,

I wanted to know whether there are any other input / view on 'Pair trading' strategy - (other than tracking deviation in correlation and initiating trades)

I am testing one different view on pair trading -

CA Rajiv D Khatlawala
(Author: "How to profit from technical analysis" Published by Vision books)

........
Which is?

First things first What exactly is meant by this pair trading strategy - is it the 'go-long-on-steel-short-autos' or 'go-long/short-on-realty-AND-banks/autos' type?

Regards,
Kalyan.

Oh Sorry Think you were referring to Forex.

Very unlikely. He talks about correlations, suggesting the fact that he means "spreads" or "ratios" between stock prices.

Hello,
What sort of testing and how?

Kalyan sir ,

u are right, but not in different sector. It is normally it is done within the same sector.

Good example is HDFC and HDFC bank.

Since both have some what same nature of operation, one can be shorted and other long.

the one which is outperforming is shorted and in other one long position is taken.

U can gain both way if u shorted comes down and the one u long moves up.

Risk is that if the one u are short continues to outperform and other underperform

This statergy also involves hedging as u are taking opposit positions.

regads
Satish

http://www.pairtrader.com/index.php

http://en.wikipedia.org/wiki/D._E._Shaw_&_Co.

Oxy, he could've meant the correlation (& mean deviation) between 2 currency pairs. Also his posts are mostly in Forex threads.

Regards,
Kalyan.

Thanks Sat Understood. And no 'sir' please.

Regards,
Kalyan.