Trading Pairs/ Options Forecast: Cost will perform better this month
Strategies: Cointegration, Correlation and Technical
Analysis : Elliot Wave Studies www.bitcoinprice.mobi/prediction/
Trading pairs Costco vs Wal-Mart which has moved from its correlation can be done based on cointegration or technical analyzing the prices of the stock pairs and tries to profit from the mean-reversion process.
Cointegration (left chart): look for the divergence pairs that have moved away from each other and then back together in a regular pattern:
1. Identify a gap.
2. Make a trade assuming the stocks will return to their correlated path
The strategy is therefore to identify when the “gap” is created and to trade in the assumption that there is a high probability the gap will close or narrow.
This pairs have a high positive correlation between them, meaning that both stocks historically tend to move together. Generally because they are from the same industry sector and traded in the same market, so the same factors impact them.
Technical Analysis of the spread (right chart):
Costco move together very closely and has a maximal correlation with Wal-Mart. This means it's profitable when the relative value between the two assets is perturbed from equilibrium, you can take a contrarian position and profit from the spread trading as the prices revert back to their long-run mean.
The trade should be opposite to the “gap”. Wal-Mart has performed better than Cost, in order to close the “gap” Cost will now perform better.
Ciprian,
google.com/+CiprianPopaIoan
Strategies: Cointegration, Correlation and Technical
Analysis : Elliot Wave Studies www.bitcoinprice.mobi/prediction/
Trading pairs Costco vs Wal-Mart which has moved from its correlation can be done based on cointegration or technical analyzing the prices of the stock pairs and tries to profit from the mean-reversion process.
Cointegration (left chart): look for the divergence pairs that have moved away from each other and then back together in a regular pattern:
1. Identify a gap.
2. Make a trade assuming the stocks will return to their correlated path
The strategy is therefore to identify when the “gap” is created and to trade in the assumption that there is a high probability the gap will close or narrow.
This pairs have a high positive correlation between them, meaning that both stocks historically tend to move together. Generally because they are from the same industry sector and traded in the same market, so the same factors impact them.
Technical Analysis of the spread (right chart):
Costco move together very closely and has a maximal correlation with Wal-Mart. This means it's profitable when the relative value between the two assets is perturbed from equilibrium, you can take a contrarian position and profit from the spread trading as the prices revert back to their long-run mean.
The trade should be opposite to the “gap”. Wal-Mart has performed better than Cost, in order to close the “gap” Cost will now perform better.
Ciprian,
google.com/+CiprianPopaIoan