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Couple of random thoughts: - Building things like this is always great. And its a fun site to poke around on. - I would not count on this approach or expect it to be reliable in terms of actually hedging. Correlation, as a measure, has lots of issues. You are boiling down a lot of complex relationships into a single number. While it is convenient for many calculations, there are many problems. For example, many asset…
Having said that, if you can find a negative correlation AND there is a strong reason to believe that the negative correlation will hold as long as X and Y hold, then the tool could be very useful.
I can see the risk in short positions - you theoretically could lose an infinite amount (if you borrow X shares of something, sell them, but then can't find any to buy when it comes to returning them), and it's certainly possible to lose more than you put in (sell 100 short at $10 netting you $1000, price doubles overnight on new news, you have to buy $2000, losing a total of $1000 in the process. If price trippled o…
For anybody who wants maximum risk, and wants to lose money as fast as possible, and in the biggest amounts, there is always the Cryptocurrency Futures market. A bit like Negative Chess...
A little tip from someone who dabbles in algorithmic trading, look into cointegration as well as correlation. Also, the cross correlation matrix changes over time, you can have great fun seeing spikes and convergence/divergence as markets tend to get more or less correlated reacting to real life events.
How does this submission have both text and a URL? When hitting submit it's shown as either/or. Does the server not enforce it?
Couple of random thoughts: - Building things like this is always great. And its a fun site to poke around on. - I would not count on this approach or expect it to be reliable in terms of actually hedging. Correlation, as a measure, has lots of issues. You are boiling down a lot of complex relationships into a single number. While it is convenient for many calculations, there are many problems. For example, many asset…
TL;DR: Correlations does not imply causation. Having said that, if you can find a negative correlation AND there is a strong reason to believe that the negative correlation will hold as long as X and Y hold, then the tool could be very useful.
The TLDR is more that correlations throw a lot of information away.
Earlier quoted context omitted.
People still do pair trading though, right?
That's kinda the opposite of what that site is advocating since in pair trading you are going long one and short the other. https://en.wikipedia.org/wiki/Pairs_trade The most famous pair trade was this: in the morning of a trading day you buy the stocks that performed the worst yesterday and short the ones that performed the best. Because the market reverts to the mean, this strategy made money hand over fist from th…
Earlier quoted context omitted.
For anybody who wants maximum risk, and wants to lose money as fast as possible, and in the biggest amounts, there is always the Cryptocurrency Futures market. A bit like Negative Chess...
What's wrong with crypto futures?