Market Neutral Corner
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Thread: Market Neutral Corner

  1. #1
    Ice-cream Speculation

    Two ice-cream sellers approaches your home
    One sell chocolate for $5 another caramel for $2
    The trader inside you scream like a maniac: how can you charge a lot to get a chocolate cone while your competitor priced much reduced?!

    Outright

    Scenario A
    ”Let me tell you how to conduct a fair price company --I bet that your price goes down, I am shorting 10 contract of you vicious chocolate guy!”

    Scenario B
    ”Let me tell you how to run a profitable performance --I bet that your price will appear, I am longing 25 contract of you my venerable caramel friend!”


    Spreading

    ”Let me tell you how to conduct a fair price company --I bet that your unjustifiable price goes down, I am shorting 10 contract of you, vicious chocolate man! In the mean time I am longing 10 contract of your competitor!

    Market Neutral

    I am shorting 10 contract of you while longing 25 contract of your caramel competitor!

    Outright Goes South

    Scenario A
    Wait wait wait, your chocolate cone's price keep rising and there are more suckas prepared to pay for that???

    Scenario B
    What do you do, grow a pair and bring more demand caramel!!!

    Market Neutral Goes South

    Scenario A
    Dang, chocolate cone price did go down, yet I did not short enough of it to offset the lost I took on caramel decrease at the same time!!!
    Scenario B
    Dang, caramel cone price did go up, yet I did not long enough of it to offset the lost I took on chocolate move up in the same time!!!
    Scenario C
    Chocolate keep skyrocketing, caramel keep stirring. . .Oh well, I guess I shouldn't have told them how to conduct their company?


    For Market-Neutral Concepts Strategy Discussion Just, thanks.

  2. #2
    Overview of Present Method to Reach Neutrality
    *Article Later*

    Fundamental


    Technical


    Statistical

  3. #3
    This should be a Fascinating discussion...

    Dave

  4. #4
    Overview of Existing Method to Reach Neutrality
    Fundamental

    Asset Courses with High Geopolitical Correlation-European Union, Oil Exporting Countries, Oceania Countries, South America Countries, etc..
    Asset Courses with High Intramarket Correlation-Calendar Spread, Spot/Futures Spread, Spot/Options prices, HFT on time lag, etc..
    Asset Courses with Top Intermarket Correlation-Dollar Quoted Assets, Public Companies within the Same Sector/Industry/Target Audience,etc..
    Asset Courses with High Triangular Correlation- EURUSD-EURGBP-GBPUSD circle, USDCAD-CADJPY-USDJPY circle, etc..
    Equity Long Short Lady
    Merger Arbitrage

    Technical

    N/A

    Statistical
    Measurement of Distance: Normalized Deviation, Co-integration, Linear Regression, Beta Coefficient, etc..
    Measurement of Direction/Strength: Correlation Coefficient(Pearson, Spearman, Kendall)

  5. #5
    Because I'm not a major fan of regular deviation/normal supply, and more free parameters=more overfitting, my own focus is on Correlation Coefficient only with supplementary method to calculate distance

    Share your idea and we may have some discussions going.

  6. #6
    1 Attachment(s) Care is to be taken if utilizing correlation coefficient. You may well find relationships due to a third party correlator, typically USD. For instance you would find a correlation between USD/CAD and WTI oil. Nevertheless this significance is mainly coming out of the strength/weakness of USD. Both of these resources used to be cointegrated but they are regardless of what a lot of people keep believing. This is a picture I created long ago (there is no information for 2015) that clearly demonstrates it. It reveals the yields of Oil vs the returns of CAD/USD (reversed to possess exactly the same quote currency)



    Also I really don't find the circular baskets such as EURUSD-EURGBP-GBPUSD to be fundamentally correlated. They are mechanically linked through the EURGBP = EURUSD / GBPUSD at any moment.

  7. #7
    This very interested in your way to manage the places without using at least or standard deviation quantiles of a distribution. I'm all ears.

  8. #8
    Quote Originally Posted by ;
    Care is to be taken if utilizing correlation coefficient. You may well find fake relationships due to a third party correlator, typically USD. For instance you would find a correlation between both USD/CAD and WTI oil. Yet this significance is largely coming out of the strength/weakness of USD. These two assets utilized to be cointegrated but they are despite what a lot of people keep thinking. This is an image I created long ago (there's no data for 2015) that clearly demonstrates it. It shows the returns of Oil vs the returns of CAD/USD (reversed...
    Yes, I agree. An individual should take extra care to work around correlation with a divisor; on the reverse side, but if you have mined a correlated/co-integrated pair without a common denominator, would you have traded them without any screening? (Somehow this phenomena appeared more frequently in co-integration). Hmm I will think about it, and thanks for the heads-up.

    Concerning hedge ratio, I am exploring two approaches, either model-free brute force or nonparametric regression. I strive to use because nonparametrics.

    Here's a great article about Kernel Regression.
    https://forexintuitive.com/attachmen...1946464765.pdf

  9. #9
    Quote Originally Posted by ;
    quote Yes, I Concur. One ought to take additional care to work around correlation with a divisor but if you have mined a correlated/co-integrated pair with no common denominator, would you have substituted them without additional screening? (Somehow this phenomena appeared more frequently in co-integration). Hmm I'll consider it, and thanks for the heads-up. In terms of hedge ratio I am exploring two strategies, either brute force that is model-free or regression. I try to utilize because many nonparametrics as you can....
    Excellent thread... Tardigrade, thank you for starting it.

    As for the hedge ratio I use a very simple way, which functioned fairly good for me.

    PairA Ratio = (AverageDailyRange of Pair B * pipvalue of Pair B) / ((AverageDailyRange of Pair B * pipvalue of Pair B) (AverageDailyRange of Pair A * pipvalue of Pair A))

    PairB iii = (AverageDailyRange of Pair A * pipvalue of Pair A) / ((AverageDailyRange of Pair B * pipvalue of Pair B) (AverageDailyRange of Pair A * pipvalue of Pair A))

    Thanks once again...

  10. #10
    Thank you for donating!

    #8203;#8203;I came across the notion you post sooner, but didn't pursue any additional coz' choosing a proper look-back window is much more discretionary than it seems.

    #8203;#8203;If I'm not mistaken, reluctantly talking the algo you said is a derivative of Beta however trimmed to fit pairs trading? I remember reading it somewhere, possibly Trading Spreads and Seasonals?

    #8203;#8203;It's good to know you have managed to captured a few adequate profit using a straightforward algo with only 1 parameter, thanks

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