It's merely a statiscal property involving 2 or more time series (http://en.wikipedia.org/wiki/Cointegration). The main (if not the only) reason traders look at cointegration is its stationarity (or mean reverting), if things divert enough in a stationary process, it WILL revert to its mean (but the exact timing of when is not known). It has absolutely nothing to do with correlation, which is another statistical concept.
). Nothing offensive and it may work out brilliantly, but just don't feel like using something I don't understand...
It's merely a statiscal property involving 2 or more time series (http://en.wikipedia.org/wiki/Cointegration). The main (if not the only) reason traders look at cointegration is its stationarity (or mean reverting), if things divert enough in a stationary process, it WILL revert to its mean (but the exact timing of when is not known). It has absolutely nothing to do with correlation, which is another statistical concept.
Generally speaking the big four banks are good candidates for pair trading, but because they are good, they often not diverge enough to generate good profit after brokerage costs. (And more annoyingly, one bad trade will often erode 3 - 5 profitable trades)
It will be interesting to see how people go with the extra "cointegration" feature in PTF 3.0.
Personally I have some reservations about how cointegration can be expressed in a number between 0 to 1 (perhaps 1 - it is cointegrated, and 0 - it is not cointegrated?
It's merely a statiscal property involving 2 or more time series (http://en.wikipedia.org/wiki/Cointegration). The main (if not the only) reason traders look at cointegration is its stationarity (or mean reverting), if things divert enough in a stationary process, it WILL revert to its mean (but the exact timing of when is not known). It has absolutely nothing to do with correlation, which is another statistical concept.
Generally speaking the big four banks are good candidates for pair trading, but because they are good, they often not diverge enough to generate good profit after brokerage costs. (And more annoyingly, one bad trade will often erode 3 - 5 profitable trades)
It will be interesting to see how people go with the extra "cointegration" feature in PTF 3.0.
Personally I have some reservations about how cointegration can be expressed in a number between 0 to 1 (perhaps 1 - it is cointegrated, and 0 - it is not cointegrated?
As a game here are the ratio charts of 6 pairs... would people like to guess what the ballpark co-integration value is for each pair according to PTF software?
View attachment 43557
I shall reveal the answer in a few days
Do I get to know the names of the pairs as the prize? I'm drooling over pairs 1, 4 and 5, so they must have a damn high score
I had a short on MCC yesterday and I copped it sweet today.
Never would I have thought that someone would launch a takeover for a coal stock one day after the carbon tax is announced. In fact, yesterday I noticed surprise strength in WHC and NHC - so I avoided shorting them (in case something was up), and chose the beaten down MCC instead. Unbelievable...
This is the first takeover I ran into after over 1000 trades. Thankfully the position was <5% of the account, so the 35% jump today only caused me ~1.6% damage. Not the worst percentage wise, but the worst in terms of $$ lost as I just doubled the capital in my account for this financial year.
Oh well. I guess if you try to pick up pennies long enough in a doggie park you will step onto dog poo eventually.
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