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What is Pair Trading?

There are many ways to make money in stocks, one such technique is called pair trading. Pair trading has been used by institutional investors and major investment banks since its start in the 1980s.  Having the potential to achieve profits through nearly low-risk positions and from any market conditions, such as uptrend, downtrend, or even a sideways movement.

The pair trading technique is a market-neutral trading procedure, which matches a long and a short position in a pair of stocks that are in the same sector. So what is pair trading exactly the short definition is the purchasing of one stock while selling another that is in the same sector. There is however a bit more to it than just the buying and selling of stocks. Pair trading makes use of under-performing stocks, meaning a stock that is not selling as well as another.

The objective is to match two highly-correlated stocks, betting that the spread between the two will converge at some point. The discrepancy between two stocks may be cause by many things such as large buying and selling for a stock, temporary supply and demand, or even a reaction for some important news on a company.

Traders look at stocks in the same sector like General Motors (GM) and Ford (F) or Wal-Mart and Target, finding the two that are most correlated to each other in movement.  To make pairing easier the two should have something in common whether sector or asset.

Next they will confirm the correlation with charts determining if they do move together. Doing this can be done with a correlation coefficient. there are online tools that can be searched for that will yield a “correlation coefficient calculator” as well as Excel has a “CORREL” function that will help to perform the calculations needed, and still yet some platforms provide a technical indicator that helps with this as well.

Finally before they can be bought and sold a price ratio or (relative performance )chart must be created. This is a chart of both of the stocks plotted together, it measures the deviation from the mean or normal spread in the pair. Some have a technical indicator that will help to figure this out others can use a average and standard deviation formula in Excel.

Once this chart has been plotted then the traders will look at the deviations in the stocks when the ratio moves from the mean they will go long (buy) on the lagging or underpriced stock and short (sell) on the overpriced stock.  The money made from selling the overpriced stock can fund buying the underpriced stock.

There are many strategies in pairs trading such as Standard deviation, spread price, price ratio, and percentage divergence. Each of these have the same base for pairs trading were they differ is in the method used in determining the price ratio.

The real question is when to jump in, and when to exit for both profit and loss depending on the standard deviation excursions.

Back to work looking for clients etc…

Since my mother passed away I haven’t worked much if at all, so now I am actively looking for new clients again. Clients that need books reviewed, articles written and etc. To pay the bills you gotta work and to work you gotta have clients which help you make money.

I will now be adding in a new section to my work day, jewelry making so hopefully I can get that business up and off the ground too. I will be taking orders for special made items as well as just selling what I already have made from my Mother’s stash and what I make. I have posted pictures of some of the jewelry already on Google+ and Facebook and gotten positive reactions for them and so when I start to actually sell them I hope they do sell well. I am hoping that I will start selling within the month and by next month as well. I will also graduate to handmade objects also.

The jewelry I make is handmade some are American Indian style others are just interesting. I can make them in all colors and not just for women either.

Contact me for a quote on my services or for jewelry orders.

Missing Posts

If you see posts or have noticed that posts are missing that is because I have had them moved over to my new personal blog that you can find the link at the bottom of the page. I will be starting to fill this site up with information that is more worthy of a writer instead of what it contained. So stay tuned here, and jump over to the blog every now and then as well, and if your a gamer hit the Tales from Distant Realms as well.

Connecting

I am trying to connect out a bit more with the world by using Linked In and Twitter. I refuse to go back to Facebook it seems to be more like MySpace was. So I am now using Google + which to me is becoming the new Facebook really. I need to start using Twitter more often; I used to use it a good bit when I first signed up and then just quit all together but will have to ease back into it. Have added all my info into LinkedIn hopefully that will get me a bit of extra work or even a big Gig. If anyone knows of anything other sites that would help let me know.

 

Christine

Almost There

The new site is almost finished we just have a few tweaks and adjustments to make now. We hope you will like it just as much as we will once we are completely finished with it.

Christine

It’s What I Do

I’m a creator it’s what I do, so I feel it is time to change up the website a bit and make it more towards that side of me. I already have a section for my writing, so I feel it is time to add in a section for any graphics work I do. Hopefully some of this will generate a bit more business for me in my writing career as I am trying to get more into it.

It will take me a small amount of time to get this done but once done it will be an easier flow through for clients to see my work and blogs as well. I hope all of you will like the changes that are coming.

Have a great day,

Christine