EURUSD vs XAUUSD - hedged arbitrage statistical analysis
Hi guys, here i am gonna show you a great strategy that have earned me some good money along my trading journey. As u have probably noticed it consists two parts - hedging and arbitrage. With simple words you trade two(or more - portfolio) instruments which have good correlation(arbitrage). The first one you trade on the short side and the second one on the long side (hedge).
This strategy is particulary great on the stock market, because most of the stocks play a big role in a certain sectors (INDICES/ETF's) and they move "together" - they have big correlation.
The reason i show you this example ( EURUSD vs XAUUSD ) is because i assume that most of you don't have the required ammount of money which is needed on the stock market (50k as a minimum) and that's why you will find it more suitable if the case is on the CFD's markets,
i.imgur.com/lOY4XYL.png - this pictures shows a regression model where Red line is the daily close price of EURUSD , the Green line is the daily close price of XAUUSD *(multiplicated) by a coefficient and the Blue line is the difference between both of the values. As u can see when the Blue line is the upper/down boundries, the Green and the Red line start to get close to each other which means that they start to close the gap.
I am not gonna explain more, but the idea here is that you have two options to trade this case: 1)with a long perspective (2 weeks - 2 months at least) 2) 1-2 days to 2 weeks.
No matter which case you choose u have to Short EURUSD and Buy XAUUSD if u believe that the gap will be closed. I advise you to paper trade it the first time and to see what will happen in the next days.
Caution !!! - for every 1 unit bought of EURUSD the appropriate ammount of XAUUSD shorted should be 0.9 units. With simple words, if i buy 1000 units of EURUSD i should short 900 units of XAUUSD .
This strategy is particulary great on the stock market, because most of the stocks play a big role in a certain sectors (INDICES/ETF's) and they move "together" - they have big correlation.
The reason i show you this example ( EURUSD vs XAUUSD ) is because i assume that most of you don't have the required ammount of money which is needed on the stock market (50k as a minimum) and that's why you will find it more suitable if the case is on the CFD's markets,
i.imgur.com/lOY4XYL.png - this pictures shows a regression model where Red line is the daily close price of EURUSD , the Green line is the daily close price of XAUUSD *(multiplicated) by a coefficient and the Blue line is the difference between both of the values. As u can see when the Blue line is the upper/down boundries, the Green and the Red line start to get close to each other which means that they start to close the gap.
I am not gonna explain more, but the idea here is that you have two options to trade this case: 1)with a long perspective (2 weeks - 2 months at least) 2) 1-2 days to 2 weeks.
No matter which case you choose u have to Short EURUSD and Buy XAUUSD if u believe that the gap will be closed. I advise you to paper trade it the first time and to see what will happen in the next days.
Caution !!! - for every 1 unit bought of EURUSD the appropriate ammount of XAUUSD shorted should be 0.9 units. With simple words, if i buy 1000 units of EURUSD i should short 900 units of XAUUSD .