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NRE Investor
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Long term investor, started investing in IPOs since 1986, many invested companies have vanished altogether and gained from some. Still an student to learn from the experience of seasoned investors.
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30 Aug 2008 00:31
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24 Aug 2008 00:39
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23 Aug 2008 03:30
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Dear VVRK,
Re \\`Safe and Easy Strategy for Higher Investment Returns\\`
Thank you indeed for advising me the name of above book. I intend to buy this book. By mistake it has appeared in my earlier message that I have this book which is not the fact and my apologies.
TKS + RGDS
NRE Investor
P.S.: Accidentally I landed on this reply today (22-8-08) as I do not know how to check replies in the new format introduced recently but experience will make a man perfect.
...
Re \\`Safe and Easy Strategy for Higher Investment Returns\\`
Thank you indeed for advising me the name of above book. I intend to buy this book. By mistake it has appeared in my earlier message that I have this book which is not the fact and my apologies.
TKS + RGDS
NRE Investor
P.S.: Accidentally I landed on this reply today (22-8-08) as I do not know how to check replies in the new format introduced recently but experience will make a man perfect.
...
20 Aug 2008 00:17
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17 Aug 2008 01:21
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07 Aug 2008 17:10
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I am a Long Term Investor but the following article from ECONOMIC TIMES dt. 7-8-08 may be of help to some of the Money Control Boarders dealing in trading:
QUOTE
Pair trading may help you tide over market fluctuations
7 Aug, 2008, 1115 hrs IST,Nikhil Walavalkar & Vidyalaxmi, ET Bureau
MUMBAI: “The difference between playing the stock market and the horses is that one of the horses must win,” observed American comedian Joey Adams. A quest to generate returns irrespective of market behaviour has led to the evolution of the ‘pair trading’ strategy.
How do pair strategies work?
According to Sharekhan Head - Structured Products Abhinay Jain, pair strategies can be done using three techniques - statistical, technical and fundamental . This strategy is adopted by those keen on generating absolute returns through the equity market but are wary of market risk.
The strategy involves identifying two securities that have displayed some ‘relationship’ in statistical terms such as correlation, standard deviation or price ratios over a certain period of time. The trader believes that the market reverts to mean and hence initiates a trade in case he finds any deviation from mean. One stock is shorted and the other is bought in equal value at the same time.
As the market corrects the anomaly and a long-term relationship between the two securities is established you stand to gain. This relieves the trader from predicting the direction of broad market movement. To maximise profits, the traders use derivatives. A trader enters a trade after experimenting various permutations and combinations and establishing a ‘relationship’ between a stock and an index.
The quantitative desk of global brokerages do not hesitate trading two ‘assets’ such as gold and crude if they show a suitable correlation. Once the relationship is established, they become good candidates for pair trading.
When does the strategy click?
Pair strategy works best in volatile markets moving sideways as the traders can find multiple opportunities. However , the spreads can be minimal and the success is a function of disciplined money management, clear stop losses and tracking the divergence in a pair than the broad market. “The rewards need not justify the risks in all pair trades,” warns Jain. In uni-directional markets such as the ones we experienced in 2005-2007 , the strategy may not deliver.
Technical and fundamental analysis can also be employed to identify pairs of stocks that are correlated.
Technical analysis is useful in some of the momentum counters to identify pairs. Due to changes in economy or the business conditions , the earnings of various businesses are impacted. In such circumstances, a trader may go long on stock that is expected to benefit from the development and short sell a stock that is expected to get hurt. “Before initiating a pair trade using any method, an experienced trader keeps a tab on other two parameters to avoid losses arising out of choice of wrong pair,” an avid trader said.
“One must follow the pair trading for at least one year and should run a basket of pairs to emerge as a successful pair trader,” Edelweiss Securities’ manager Yogesh Radke said.
Also, it must be noted that targets and stop losses are expressed as a function of ‘mean relationship’ and hence real time simultaneous tracking of the two securities becomes inevitable. Complex spreadsheet models with live feeds are used for the same, attracting good amount of costs, making it an affair where only big money can make a meaningful presence. This has resulted in making it an offering for institution and ultra high net worth individuals only.
UNQUOTE
RERGARDS
NRE INVESTOR
...
QUOTE
Pair trading may help you tide over market fluctuations
7 Aug, 2008, 1115 hrs IST,Nikhil Walavalkar & Vidyalaxmi, ET Bureau
MUMBAI: “The difference between playing the stock market and the horses is that one of the horses must win,” observed American comedian Joey Adams. A quest to generate returns irrespective of market behaviour has led to the evolution of the ‘pair trading’ strategy.
How do pair strategies work?
According to Sharekhan Head - Structured Products Abhinay Jain, pair strategies can be done using three techniques - statistical, technical and fundamental . This strategy is adopted by those keen on generating absolute returns through the equity market but are wary of market risk.
The strategy involves identifying two securities that have displayed some ‘relationship’ in statistical terms such as correlation, standard deviation or price ratios over a certain period of time. The trader believes that the market reverts to mean and hence initiates a trade in case he finds any deviation from mean. One stock is shorted and the other is bought in equal value at the same time.
As the market corrects the anomaly and a long-term relationship between the two securities is established you stand to gain. This relieves the trader from predicting the direction of broad market movement. To maximise profits, the traders use derivatives. A trader enters a trade after experimenting various permutations and combinations and establishing a ‘relationship’ between a stock and an index.
The quantitative desk of global brokerages do not hesitate trading two ‘assets’ such as gold and crude if they show a suitable correlation. Once the relationship is established, they become good candidates for pair trading.
When does the strategy click?
Pair strategy works best in volatile markets moving sideways as the traders can find multiple opportunities. However , the spreads can be minimal and the success is a function of disciplined money management, clear stop losses and tracking the divergence in a pair than the broad market. “The rewards need not justify the risks in all pair trades,” warns Jain. In uni-directional markets such as the ones we experienced in 2005-2007 , the strategy may not deliver.
Technical and fundamental analysis can also be employed to identify pairs of stocks that are correlated.
Technical analysis is useful in some of the momentum counters to identify pairs. Due to changes in economy or the business conditions , the earnings of various businesses are impacted. In such circumstances, a trader may go long on stock that is expected to benefit from the development and short sell a stock that is expected to get hurt. “Before initiating a pair trade using any method, an experienced trader keeps a tab on other two parameters to avoid losses arising out of choice of wrong pair,” an avid trader said.
“One must follow the pair trading for at least one year and should run a basket of pairs to emerge as a successful pair trader,” Edelweiss Securities’ manager Yogesh Radke said.
Also, it must be noted that targets and stop losses are expressed as a function of ‘mean relationship’ and hence real time simultaneous tracking of the two securities becomes inevitable. Complex spreadsheet models with live feeds are used for the same, attracting good amount of costs, making it an affair where only big money can make a meaningful presence. This has resulted in making it an offering for institution and ultra high net worth individuals only.
UNQUOTE
RERGARDS
NRE INVESTOR
...
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