Algokid

PAIR TRADE (SEMICONDUCTORS- INTEGRATED CIRCUITS)

NASDAQ:DIOD   DIODES INC
182 5 0
SHORTING DIOD (RED) current price 20.95
LONG FCS             (GREEN) current price 11.61

Correlation --> 80%
Co-Integration --> 0.92

Based on trade history of this pair , I expected to make money on one leg only.

@lgo kid
www.passivestor.com
Algokid PRO
4 years ago
Closing the trade with a profit on the Long ( closing @ 13.13 from 11.61) and a loss on the short ( closing @ 22.03 from 20.95) from a net tiny profit .....I 'll take it
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charttrader PRO Algokid
4 years ago
Not bad. BTW do you always use % chart for pair trading? Does it work good for you? I found that % charts ratio depends on the starting point or it's not a problem? Please help me to find the best tool for pair trading analysis. Thanks.
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Algokid PRO charttrader
4 years ago
Hey Chart Trader, I use both % and price charts for pair trading. I recently start using the % chart to measure the distance in % between the 2 stocks . You are right when saying the ratio depends on the starting point, but the ratio should remain approx. the same from any starting point.

But at the end of the day the chart help me see the correlation between the 2 stocks ( just like the stock above). There's a lot of tools for pair trading analysis . I mainly use my excel model to find trades, but here some good tools you could use :

for Correlation :
http://www.sectorspdr.com/correlation/ , calculate correlation for any stocks vs other stocks and spider etf , very good tools

Backtesting:
Once you have found you pairs , you can backtest them here , http://www.pairtradinglab.com/index.php
very good website, helps me a lot.

also pay a visit to these guy , http://www.pairslog.com/ , they basically allow you to create a big portfolio of pairs and test them in real time. The service is currently free as they are still in beta mode. the community is great , good knowledge exchange. I hope this will help , let me know if you have any questions :)
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charttrader PRO Algokid
4 years ago
Algo kid, thank you very much for the detailed information. It's very interesting. Do you think that spread chart is more valuable for pair trading than percent/compare?
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Algokid PRO charttrader
4 years ago
Hi Chart trader, for me i think the spread/ratio chart is more valuable than the percent/chart.It allows me to see point of support and resistance for that pair. once this feature is available here, i will change the way i post mu signals. I will use the ratio chart combine with the Bollinger Bands. I think this will help other see why I enter a pair trade.

I started using the percent/compare chart lately just to see the difference in % between the 2 stocks in the pair. if it's too wide , i tend not to enter it. still trying to get comfortable with it .
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