ETF or closed end fund price vs. prices of underlying stocks (I
personally know a guy who has made a fortune doing that)
I've thought about exploring this one. But the thought of
slippage/frictional costs scares me a bit when dealing with individual
stocks.
My interest is finding pairs of stocks with prices that closely track
each other (such stocks are called co-integrated). When the prices
diverge from each other, I take long and short positions. When the
prices mean-revert to long term average spread, I close both positions
for profit. Since the positions are always hedged, the strategy can
make money regradless of whatever else happens in the market.
The math of identifying co-integrated stocks can be very simple, -
just count how many times the price spread flips sign in a fixed
interval of time. Or it can be more complicated, using specialized
statistical tests, such as ADF.
Some of JBookTrader's functionality can be useful to determine the
timing of spread mean reversion.
------------------------------------------------------------------------
*From:* new_trader <[email protected]>
*To:* JBookTrader <[email protected]>
*Sent:* Thu, November 4, 2010 3:05:43 PM
*Subject:* [JBookTrader] Re: Cross Indicators
@Astor:
where do you see arbitrage possibilities in JBT? Can you please
elaborate a bit more on this?
can you have some thoughts on the (mathematical) background of this?
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