Random Pairspotting..
Since I have ‘gained’ the skills of using excel to calculate standard deviations etc., I thought it would be a good idea to do some random pairspotting and figure out how it works in the market. This is an exercise i started, since ganapathy’s book is too heavy, and turns out i need much more time for the book than what i had originally estimated.
The KRChoksey folks have done a tremendous favor by releasing a set of reports on pair trading, so we already have a set of “possible” pairs where we can look for opportunities. In this exercise, I also want to look at the “how” part, and the associated brokerage costs.
One of the things we need to construct, as part of the pairspotting exercise, is to have some kind of a mega signal picking tool, with the entire universe of the futures segment in NSE, alerting us of any tradable divergence. The trick here is this: do we work with “possible pairs” (same industry / some other fundamental analysis) or do we go for a comprehensive pairspotting exercise?
Like many other cases, scale determines the answer. There are 270 stocks whose futures contracts are traded on NSE. So a comprehensice signal picker would need to consider 270C2 combinations, i.e., 36315 possible pairs. I think we shd be able to build a comprehensive signal picker.
Why is this ‘random’ pairspotting? bcos, except standard deviations, we r not using anything at this point. Well, if google makes you believe that pairs trading is all about standard deviations, have a look at ganapathy’s book!
1 year ago