Is anyone looking at GE lately to see that it is rocketing higher? In the past, GE used to correlate almost perfectly with the overall stock market but since it imploded, eliminated its dividend, was rescued by the US Gov't (yes, they backed hundreds of billions of their debt with the full guarantee of the US Gov't) and while all leveraged companies delevered, I stopped looking at GE as a key barometer. But now that I am looking at GE again here, it seems that there are some interesting observations about the way GE shares seem to LEAD the SPY. See if you can see the divergences for yourself first, then view the chart that I publish later. Note how GE is rocketing now. Cheers to everyone. By: Technical TIm, 3:31PM EST, Friday, December 23, 2011. PS - This is a potential "pairs trade"
Comments
timwest
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Note how the lows seem to match up, but the highs for GE are way above the SPY.
Algokid
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Very interesting Tim, I put both the SPY and GE in my pair trading model to see if any trade was triggered. Well yes, the correlation between the two pairs is 76 % ( acceptable) , but the co - integration is only 0.30 ( not good). Currently , there's a short order on GE and a LONG order on SPY. I'm curious to see the result of this trade. Will post a chart shortly. Thanks for posting this .
timwest
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Dear Algo kid, good luck and thanks for the research. How many days do you use to create your numbers? Do you also look at rolling correlation to see if the number is trending up or down? As far as this pair, GE just seems to lead nicely so, I viewed this pair more as a market barometer.
Algokid
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Hi Tim , I usually use calculate the mean, correlation, and standard deviation for the past 100 days and use that data for the next 20 trading days before starting the process all over again. I use a correlation study in think or swim trading platform to see the daily correlation of the pair.
For this pair ,I'm curious to see if GE will return to the mean first before continuing to lead the S&P. So far I see a retraction of GE .
timwest
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Would you care to take another look at this GE vs SPY?
Algokid
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Hi Tim , no signal on this pair. Correlation is @ 90 % , but the ratio is at 0.46(based on the last 100 days ) , so no divergence between the two stocks yet. Would like me to verify this on a short time frame (20, 40 days perhaps?) Will update you when I get a signal. :)
Algokid
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oh, about the previous signal generated on Dec 22,2011 ( long SPY, short GE), closed the trade on Feb 02 would of net a profit of 1.706 %