Pairs trading: Gold and Dow

[jj1929]

Can we pair trade gold and dow?
My rationale:
When we expect gold outperform dow, we long gold and short dow.
When we expect gold underperform dow, we long dow and short gold.
Will my rationale be profitable?
Any risks that I need to think about?

 

[Sean K]

Can we pair trade gold and dow?
My rationale:
When we expect gold outperform dow, we long gold and short dow.
When we expect gold underperform dow, we long dow and short gold.
Will my rationale be profitable?
Any risks that I need to think about?

Gold seems to have only just decoupled from the DOW and could revert at the drop of a hat so not sure if the premise is sound.

Might need some back and forward testing there.

When you work out how to forward test, send me a PM please.

 

[bvbfan]

Are you in effect trying to trade the DOW:Gold Price ratio?

I personally wouldn't be trying to do it.

IMO if the USD is going to lose purchasing power then why won't the DOW and Gold Price rise in tandem while the USD index drops.

A mini Zimbabwe if you want to call it that