Statistical Arbitrage

The pairs trade or pair trading is a market neutral trading strategy enabling traders to profit from virtually any market conditions: uptrend, downtrend, or sideways movement. This strategy is categorized as a statistical arbitrage and convergence trading strategy. The pair trading was pioneered by Nunzio Tartaglia’s quantitative group at Morgan Stanley in the 1980s.

When the correlation between the two securities temporarily weakens, i.e. one stock moves up while the other moves down, the pairs trade would be to short the outperforming stock and to long the underperforming one, betting that the "spread" between the two would eventually converge. The divergence within a pair can be caused by temporary supply/demand changes, large buy/sell orders for one security, reaction for important news about one of the companies, and so on.

Pairs trading strategy demand good position sizing, market timing, and decision making skill. Although the strategy does not have much downside risk, there is a scarcity of opportunities, and, for profiting, the trader must be one of the first to capitalize on the opportunity.

A notable pairs trader was hedge fund Long-Term Capital Management.

Real-time correlation for MT4

The FX AlgoTrader Real-Time Correlation Indicator provides real time correlation data on MT4 charts for up to 30 FX pairs in real-time.

The indicator will return the correlation data for the current chart timeframe. For example, if you run the correlation indicator on an hourly chart the system will return 60 minute correlation data - 5 minute charts return 5 minute correlation data etc. The correlation indicator uses a custom library function which calculates the Pearson correlation coefficient in real time. The correlation data is then passed back to the Correlation indicator for display. The algorithm uses data over 200 chart periods for the real time correlation calculation.

The FX AlgoTrader Real-Time Correlation Indicator provides trader definable external input paramaters which allow customisation and fine tuning. These parameters are:-

  • Include/exclude the following currency pairs:-
    • EURUSD,EURJPY,GBPCAD,
      GBPAUD,NZDCHF,GBPUSD,
      GBPCHF,CADCHF,AUDCHF,
      NZDJPY,USDCHF,GBPJPY,
      CADJPY,AUDJPY,AUDNZD,
      USDJPY,CHFJPY,AUDCAD,
      EURNZD,NZDCAD,EURGBP,
      USDCAD,AUDUSD,NZDUSD,
      XAUUSD,EURCHF,EURCAD
      EURAUD,GBPNZD,XAGUSD

  • Customizable display options including:-
    • Trader defined positive and negative correlation thresholds

    • Define colours for pairs which meet correlation threshold requirements

    • Show only positively/negatively correlated pairs which exceed trader defined threshold

    • Define which pairs are submitted to the correlation calculation engine - allows the trader to customize the size of the correlation table. The indicator dynamically resizes table and data output accordingly.

    • Set colours for positive/negative/uncorrelated and 100% correlated pairs

    • Works with any MT4 account ie Standard, mini and micro. For mini and micro accounts some brokers use a suffix at the end of the pair data eg EURUSDgfx. The 'Pair Suffix' external input parameter allows any suffix to be added to allow full mini/micro account compatability.
  


 

If you don't understand why correlation data is important for forex trading - Click here

No need to access external websites. Get real-time correlation data from within your MT4 environment.

50% DISCOUNT

Real-time correlation for MT4

 

$87.44
$43.72

Licensing Details


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Correlation Indicator for Metatrader
Click Image for Larger Version

Screen shot of the Real-Time Correlation indicator on an hourly MT4 chart showing real-time correlation for 12 forex pairs.

 

RISK DISCLOSURE

The products on this site are trading tools and are not intended to replace individual research or licensed investment advice. Past performance does not guarantee future results. Trading currencies involves substantial risk, and there is always the potential for loss. No representation is being made that these products will guarantee profits or not result in losses from trading. Any explanation or demonstration of the product's operation should not be construed as a trade recommendation or the provision of investment advice. The purchase or sale of a currency can only be performed by a licensed Broker/Dealer.

 

 

 

 

 

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