Quant ideas

Ok so this is going to be a rant about something I tried to figure out when I ran a 1 year (May 16 2011 - present) data chart (same as other one posted) for the same stocks.

Realised that it was quite a volatile strategy, so got me into thinking about how to use a mean reversion strategy for this (I think it's called mean reversion?)

So here is what I did:

• Took Stock Prices and imput them to excel (using yahoo finance historical eod data)
• Took the higher priced stock and set base number of shares to 1000.
• calculated how many shares that same dollar amount would be equivellent in the other stock
•  Added both day 1 capital to eachother
• took day 2-day1 as the return on the day
• Calculated the ROR per day
• Calculated STDEV of the ROR
• also calculated -STDEV, 2STDEV,-2STDEV
•  Charted everything

 So what I think I have is the change in the value of the portfolio from day to day.

What I see now is this:

 Notice how there is a giant move on here?

Am wondering now how to profit from this large (possible 3STDEV move)?

Considering this:

• When ROR Breaks 2STDEV:
• Sell portfolio
• When ROR breaks -2STDEV:
• Buy Portfolio

Looking for someone to advise on this.  Please Comment or Find me on Linkedin.