Top Pair Stocks for Pair Trading

[pairtradepro]

So fair in last 2 years of pair trading, these have been my top 4 favorites. I have also added the backtest results.

HDFC vs HDFC Bank - 35/35 Winners - Biggest Hit - All time favorite
Colpal vs Dabur - 18/18 Winners
DR Reddy vs Lupin - 20/21 Winners
Gail vs Ongc - 32/33 Winners - nowadays lot of oil related news so i avoid

Do you know better profitable pairs?

 

[rkkarnani]

Why would u need other pairs!!!
Now tell us something about the strategy used for pair trading!
You seem to be doing good in Pair trade so if you find time teach us about it here.
Thanks.

 

[pairtradepro]

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.

 

[rkkarnani]

This is based on EOD data or RT intraday data?
Who are data vendors for this software? Any RT data vendor or some specific data vendor subscription is required!
Just rattled off the queries, will look into the web pages for more info! Thanks for sharing.

 

[pairtradepro]

It's a website not software so you don't need any data subscription. It has the list of f&o scrips because only in f&o shorting is done. It is EOD and is updated daily evening.

 

[rkkarnani]

It's a website not software so you don't need any data subscription. It has the list of f&o scrips because only in f&o shorting is done. It is EOD and is updated daily evening.

Being absolutely new to Pair Trade and not having much interest in the subject, I am always found it tough to understand the concept. However the first impression I get using your Website is : Here is a site that offers me ready made trades for Pair Trade! But still finding it tough to find the trades for the day.
A tutorial would be most Welcome.
I was using the "Back Test" feature on your website.
I tried to back test : Maruti vs. Tata Motors. The result was positive.
I tried to back test : Tata Motors vs. Maruti. The result was negative.

Please explain in lay person's terms.

Thanks.

 

[pairtradepro]

Check the Watchlist section at the top. I have added most of the f&o securities in watchlist sector wise. So daily you don't need to check manually.

You can see whether any buy/sell signal is generated in "Signal" Column.

Regarding the pair u mentioned (maruti) - with more than 100 symbols in f&o u can created several hundred pairs - all those are not going to win.

You have to choose pairs that are closely related. E.g. Nifty vs Coal India is one good pair. If you spend time and make pairs that are fundamentally related you can create a lot of pairs.

 

[rkkarnani]

Check the Watchlist section at the top. I have added most of the f&o securities in watchlist sector wise. So daily you don't need to check manually.

You can see whether any buy/sell signal is generated in "Signal" Column.

Regarding the pair u mentioned (maruti) - with more than 100 symbols in f&o u can created several hundred pairs - all those are not going to win.

You have to choose pairs that are closely related. E.g. Nifty vs Coal India is one good pair. If you spend time and make pairs that are fundamentally related you can create a lot of pairs.

Sorry, I thought what I wrote was obvious! I did not specify the obvious...... I tested by choosing Maruti in first coloumn and tata motor in second coloumn, the result was positive but when I back tested the same pair, choosing Tata Motor in first coloumn and Maruti in second coloumn, the result was negative! In each case the PAIR was same results were different.
My query may be too basic as confessed, I have no idea about this strategy. Thanks for your patience.

 

[pairtradepro]

First See the signal column
For Maruti vs TataMotor - You see Short MARUTI/ Long TATAMOTORS
For Tata Mot vs Maruti - You see buy TATAMOTORS sell MARUTI
See both are same.
See the signal column

 

[pairtradepro]

It is pure mathematics. The web application doesn’t know stocks. It compares A and B. Creates ratio of A:B. When the ratio goes up or down from the mean ratio a trade is generated. This is pair trade.
Let me tell with e.g. there was a time when Maruti price was 2 times M&M Price. That is Maruti/M&m = 2. Like when m&m was 1000 maruti was 2000 like that. So for some reason maruti price shoots up to 3000 but m&m still stays at 1000. So now the ratio becomes 3. Now the system compares the current ratio 3 with medium term historical ratio, lets say 2. So when suddenly it moves to 3 from 2 in a short time there is a big deviation and so a pair trade is formed. It is basically Standard Deviation concept. There is a fundamental logic to this concept.
This is not only for stocks. You can apply this concept to any 2 comparable things, that have been historically similar but there is sudden deviation.
Check Bank nifty vs Icicibank. Press the ratio chart button. You can see that after nearly 3 years bank nifty vs icici ratio has peaked up and so there is a signal.