Pair Trading - Exploring The Low Risk Statistical Arbitrage Trading Concepts

[nurav]

This is how this HDFCBANK/SBI pair performed last month. 100 (on Long side) and 350 on short side. 450 points or (even say 400) for doing just 2 trades in a month multiplied by 500 = 2Lac.

 

[nurav]

I had posted these charts just to illustrate the profit potential with relative safety(because we are short one instrument and long in another) so even if the markets were to crash, there would be limited losses if not huge profits.
Very Nice initiative Ncube Sir.

 

[ncube]

View attachment 27126

This is how this HDFCBANK/SBI pair performed last month. 100 (on Long side) and 350 on short side. 450 points or (even say 400) for doing just 2 trades in a month multiplied by 500 = 2Lac.

Is this done on Amibroker and is there any thread in the forum explaining more on this?
This would be useful for maybe day trading. With proper risk management...however at high level looks like it does not consider mean reversion...hence they may not mean revert over a course of few days..so its same as trading any normal stock.. instead we trade spread here. Is my understanding correct?

 

[nurav]

Yes sir. Longs only considered above the monthly pink line and shorts below that. Mean reversion may take time. Sometimes the whole month is uni-directional.

 

[nurav]

The earlier charts i had posted were of 15sec TF. This is 5min TF and give a better and less jumbled reading. One can use even 15min charts with the same results i think.

 

[nurav]

15min. TF. The same results though i do not have data more than 3 months so the horizontal line is not forming properly. If you are short this pair, you can add to your pairs when the horizontal line turns red. Can Trail with the highs of the green period for all adds/trades. So instead of 1, you would have 3 profitable trades from the 21st of July.

 

[nurav]

For Pair trading the Bias should be very clear. And one should be willing and adequately funded to take Adds for humongous profits with limited risks(Infact at the point of ADDS, more often than not there is no risk to the overall position). Because once a trend matures it gives great profits and that is the time that you need to build onto your winning positions.

 

[nurav]

I find this much better than to find shares daily for intra trading. Some other pairs i suggest are Banknifty-Nifty in the ratio of 1:1.5 (i.e 2:3) or 1:2. Tatasteel-VEDL (to arrive at the ratio just divide the value of futures lot of the higher of the 2 with the lower one and round it off. So if you get the value as 2 then it means 1 lot of the expensive share and 2 lots of the cheaper one). Since for positional you need to carry overnight as you cannot sell shares without delivery so better to deal in futures.

 

[nurav]

There are multiple ways to use this way of trading. If you are clear in your mind That say Banknifty is in uptrend and would go up in a big way, you can sell 1 in the money call and buy 3/5 out of the money calls from the premium collected. This would also fall under spread trades.

 

[UberMachine]

There are multiple ways to use this way of trading. If you are clear in your mind That say Banknifty is in uptrend and would go up in a big way, you can sell 1 in the money call and buy 3/5 out of the money calls from the premium collected. This would also fall under spread trades.

I like your implementation.
Well done. You are mixing up calendar spreads (BANKNIFTY) and pairs trading which is even more safer.
Actually, the entire thing boils down to trading spreads instead of stocks which requires a slightly different mindset in my opinion.

I am trying to take this strategy to intraday as suggested by @ncube.