Pair-Trading

#21
surprised that nobody has yet explained pair-trading properly..

well, u basically eliminate market specific or systematic risks, and bet on narrowing or widening of price differential between a pair of stocks..(also called beta neutral strategy)

For example, last year, with the kind of corporate ethics anil ambani has and with all the problems, u expected adag stocks to go down. So you could have shorted it. But what if the market started going up? You could have lost money then...

any other way to make money even if the market went up? well, here pair-trading strategy comes. u could have gone long on Mukesh, and short on Anil.. and whether market went down or up, adag wud have under-performed mukesh's stocks.. of course, u wud have to use proper hedge ratio, beta analysis etc..and this strategy gave good returns in the last year.

this example is a bit crude, but the principle remains. u eliminate the market-risk and bet of price deferential to narrow or widen..
hey nice reply. please share more friends.
 

Bigbear

Well-Known Member
#22
Hi,

Just some thoughts.......

Looks like IT companies have topped today according to this data. IT sector will be weak due to furhter dollar depreciation.



So Pair trading would mean going short in IT sector and going long in BANK sector..


Another thought,
Crude Oil's price is going up, So oil companies will be weak like IOC,BPCL.. Airline companies like JetAirways... etc


Another thought,
Interest rates are high, so the next best candidates to short would be Infra and real estate companies.

These are just ideas.. Like this, there can be many BETTER ideas ..

But now our markets are driven by strong liquidity.. So we should be careful with shorting.

There may be many other things to consider apart from this. These are just ideas.. I am not asking you to take any trades.. just see what is happening in these sectors..
:)
 
Last edited:
#23
Hey Nice Share Friend,

Untill I think , In This Budget may be some money for infra space. In addition Inflation Is down untill crude price is stable. So RBI policy would decrease repo-reverse repo rate. may be positive for infra spce untill i know.

this is my personal view




Hi,

Just some thoughts.......

Looks like IT companies have topped today according to this data. IT sector will be weak due to furhter dollar depreciation.



So Pair trading would mean going short in IT sector and going long in BANK sector..


Another thought,
Crude Oil's price is going up, So oil companies will be weak like IOC,BPCL.. Airline companies like JetAirways... etc


Another thought,
Interest rates are high, so the next best candidates to short would be Infra and real estate companies.

These are just ideas.. Like this, there can be many BETTER ideas ..

But now our markets are driven by strong liquidity.. So we should be careful with shorting.

There may be many other things to consider apart from this. These are just ideas.. I am not asking you to take any trades.. just see what is happening in these sectors..
:)
 
#25
The strategy of matching a long position with a short position in two stocks of the same sector. This creates a hedge against the sector and the overall market that the two stocks are in. The hedge created is essentially a bet that you are placing on the two stocks; the stock you are long in versus the stock you are short in.
 

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