Thread by @kerberos007

a derivative of this arbitrage strategy is to time your favorite stock

1 if I prefer over based on fundamentals & other economic factors

2 wait for > than ; spread > 2 std

3 then, long ,; short

4 with money mgmt of -10% stop loss and position sizing

https://twitter.com/kerberos007/status/1297364211031511040

Hedging or pair trading with SPY, QQQ & SPY-500 sector ETFs

criteria

1 correlation>0.8
2 co-integration pvalue<0.05
3 ADF stationary pvalue<0.05

long your favorite stocks & short the index & sector ETFs

or

short , & long your favorite index & sector ETFs

1 of 3

Hedging or pair trading with SPY, QQQ & SPY-500 sector ETFs

criteria

1 correlation>0.8
2 co-integration pvalue<0.05
3 ADF stationary pvalue<0.05

long your favorite stocks & short the index & sector ETFs

or

short , & long your favorite index & sector ETFs

2 of 3

Hedging or pair trading with SPY, QQQ & SPY-500 sector ETFs

criteria

1 correlation>0.8
2 co-integration pvalue<0.05
3 ADF stationary pvalue<0.05

long your favorite stocks & short the index & sector ETFs

or

short , & long your favorite index & sector ETFs

3 of 3

Bonus.

added "Hedge ratio" (h)

regression:
Y = a * X + b

stockY = h * stockX + b

or

stockY shares = h * (stockX shares) + 0

example:

SPY-AMGN pair;
h = 0.74

AMGN shares = 0.74 * SPY shares for hedging

long AMGN 1000 shares
short SPY 740 share

or vice versa..