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Equity Pairs

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In the markets certain stocks can be very closely correlated, moving together and maintaining a certain gap between them. Once in a while the due to inefficiencies in the market, the gap widens to larger then normal. In the majority of cases this can be an opportunity to trade the stock pairs, as they will often return to the normal gap. By placing a trade on the higher priced stock to move down (short) and the lower priced stock to move up (long) you can profit from the inefficiency if the return to a normal gap.

As you have a long and short position on the pair of stocks, this also offers protection against large market moves.

The equity paris app identifies stocks in the FTSE 100 which are closely correlated, calculates the standard gap between them and the standard deviation from that gap. It then picks out the stock pairs which have deviated more then the standard deviation. It also calculates the weighting you need to ensure the same level of exposure for each stock, should you use a spread betting account to trade with.

Equity pairs is simply a tool to select pairs of stocks which have a close correlation, any trading you may choose to do is entirely at your own risk.

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