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.

Lost a little today

So decided to just post visual chart instead of actual numbers to keep it easier to follow (plus allows me to play around in excel a little more)...

Top is the dollar amount invested in each stock starting on the 1st day, and the gains/losses from each (in dollars).
Bottom is the spread between the two stocks (in dollars).

As of closing friday..L/S is profitable!

Closing prices today:
BAC: $7.88   $32 071.60 short $284.90
C: $32.35 $32 350.00 $-10
Profit: $274.90

original $ in trade: $64 716.50
profit: 0.425%

notes:
was interesting seeing a reversal and seeing how the short moved enough not just to offset loss on higher priced C, but also to move the pair trade into profitablilty.

Also just completely random but having 284.90 loss on BAC Thursday, and then same amount profit on Friday.

Long/Short Strategy

Closing prices today:
BAC: $8.02   $32 641.40 short $-284.90
C: $32.71 $32 710.00 $+350.00

Profit: $65.10

original $ in trade: $64 716.50
profit: 0.10%

An experiement with Long/Short Strategy

Ok so using my limited knowledge on long/short strategy to test out how it works using two companies.

Currently, as I want to keep them in the same sector, with relatively same market cap, I am using BAC and C.

Long 1000 C for $32 360.
Short 4070 BAC for $32 356.50

current spread = $3.50 due to rounding to nearest share


Will look at over the coming week or so how this strategy works.  Clearly just randomly picking stocks, not doing any actual investing.




sidenote from school:  as this is a blog and I do need to vent:

I am out of motivation to try in school, not making money, not getting good grades, being lazy as hell.  Need to rectify this or things wont go well this summer.

Research in Motion Risk Arbitrage Idea

Rimm currently has a bid/ask on the TSX of:

17.99/18.05 Canadian dollars

This means you can currently sell 1000 rim shares for $17990.00 +commission.

RIMM is trading in the US at:

17.34/17.35$ US Dollars.

Currently the conversion rate of US to Canadian cash rate using TD is:

1.0223

Meaning you can buy 1000 Rimm Shares for 17736.91 Canadian Dollars +commission.

Not really profitable on small level, but calculate a larger amount, say 1000 shares (still same commission)
Buy 1000 shares in US for 17 350 USD or 17 736.91 CAD, Sell 1000 Shares in Canada for 17 990.00 CAD.  Your unrealised profits are 17 990 - 17 736.91 = $253.09

Risks:
-Holding while waiting for prices to converge
-Currency risk.

School Life.

Been very busy lately. noticing I still need to work on organization. Realistically the work isn't that hard, its finding the time to do all of it, pay bills, and still keep a social life. Was sick last week so I have a bunch to catch up on, plus two major assignments due this week, and another midterm on Friday. Marks have been ok, lately they have been dropping. Time to get my ass back in gear and get'r'done.