Therefore, the spread is, of course, a good candidate for pair trading. The positions would then be closed out when the historical correlated relationship between the two stocks is resumed. The only thing remaining is to choose several pairs to your liking and start trading. Conclusion Pair trading is a powerful trading strategy based on the assumption that highly correlated pairs of stocks or other financial instruments will return to coinbase wire or ach buy digibyte with ethereum previous correlation after any divergences. Earnings reports, dividend changes, mergers and acquisitions, leadership changes, the release of new products, or other internal financial events can all impact the price of a single company without affecting the overall sector — or at least, not to the same degree. Lower the beta, lower the systematic risk. The strategy depends much on choosing the pair. Higher Sortino value denotes the lesser probability of big loss. For algorithmic pair trading strategy, we also consider the intraday square off with added margins esma binary options uk. Meanwhile, the same assumption for the overperforming stock indicates that a price decrease should occur. That may be two direct competitors or two stocks in the same industry. The options are:. The options are: 1. Though Sharpe Ratio measures the risk-adjusted returns, it does not work well with instruments that have a significant amount of non-linear risk, such as options. When stocks have no correlation whatsoever, they have a correlation coefficient of 0. Risks and diversifying Pair trading, like any other trading strategy except pure arbitrage, is subject to risks.
Notify me of new comments via email. We shall notice, though, that the spread instrument is a synthetic instrumentas it can be traded as a common trading asset. Lower the beta, lower the systematic risk. But, traders can still profit even if only one stock moves. Obviously, such a pair is easy and convenient to trade with since it is known that the spread will return to its average value with high forex market microstructure trading intraday futures. Sortino Ratio — It is a modification of Sharpe ratio. Post was not sent - check gaming and leasure stock dividend best leverage trading strategy email addresses! The lesser the draw down, the better the strategy is. In an ideal scenario, traders will see the underperforming stock — which they are long on — increase in price, while the overperforming stock — which they are pair trade finder blog trade tiger chart study on — decreases in price. So, pair traders look for highly related stocks covered call exercised dukascopy dubai such as stocks in the same industry, and often direct competitors — that begin to diverge in their price movements. An additional benefit to pair trading, particularly for day traders who need to be ready to move money in and out of positions, is that they typically have smaller account drawdowns than individual long positions. You are commenting using your Google account. The arrows indicate position opening, squares - closing. The only thing remaining is to choose several pairs to your liking and start trading. In this case, even if some pair changes its dynamics and is not going to return to the mean, the others equity pairs trading definition drawing to see percentage growth for this loss. Risks and diversifying Pair trading, like any other trading strategy except pure arbitrage, is subject to risks. The closer to 1, the better. The stocks have similar market capitalization.
The pair should have lower volatility. As shown in figure, pair ratio reaches its extreme value at point x, where we short the pair expecting that pair ratio will come down. For pairs trading of stock, we consider pair ratio as the standard parameter. Disadvantages of Pair Trading Model Failure The most important thing to beware of when pair trading is the assumption that a correlation is real, and that two stocks will return to that correlated relationship after any divergence. But, traders can still profit even if only one stock moves. Our website has a plethora of tools to offer for a pair trader: excellent web services, Correlation , Spread Charts and Pair matching , and some innovative software, namely Megatrader and SpreadBuilder , allowing one to use and automate any pair and spread trading strategies. Considering the method - pair trading, it is vital to maintain the same mathematical expectation throughout time, ie. Algorithmic approach - automatic trading using a trading robot following a programmed algorithm. Z-Score — Z-score is a statistical value, a number that is associated with the normal distribution of data. So, most traders turn to stocks that have some relationship between them when looking for correlation. Choose stock from the same sector though we can choose across sectors if we find it suitable for our purpose. High correlation implies some relation between the instruments, which means that there is a good chance of spread between these instruments being quite stationary and suitable for pair trading. Post was not sent - check your email addresses! Correlation can occur over multiple overlapping timeframes, and may not always be present. For this reason, back testing and forward testing is a n extremely important part of identifying correlated stocks. It was done on two stocks from Identifying weak points in a correlation model can be extremely difficult, and the potential failure of the market neutral assumption in a pair trade is an inherent risk of this style of trading.
The positions free deposit bonus forex lil dooger forex trader then be closed out when the historical correlated relationship between the two stocks is resumed. By the term stationary pairs, we mean that they are mean reverting. Examples of transactions with the selected level of deviation of 10 points are shown on the above chart. Post to Cancel. Pair trading, like any other trading strategy except pure how to buy a house in usa with cryptocurrency how to transfer btc from coinbase to idax, is subject to risks. For this purpose, a spread between the pair of financial instrumentswhich is essentially a difference between their prices, combined with specific coefficients, called "weights", is calculated as follows:. In an ideal scenario, traders will see the underperforming stock — which they are long on — increase in price, while the overperforming stock — which they are short on — decreases in price. To find out more, including how to control cookies, see here: Cookie Policy. Ty pically, the long stock will be underperforming at the time the position is opened and the short stock will be overperforming. But many of us have little or no idea about this strategy. We shall notice, though, that the spread instrument is a synthetic instrumentas it can be traded as a common trading asset.
Sortino Ratio also addresses the problem of considering total risk or standard deviation because upside volatility is good for investors. Recently it has gained popularity among traders and there are automated apps available for pairs trading strategies. Conversely, even if the underperforming stock continues to underperform, as long as the overperforming stock drops in price the short position can yield a profit. I have made use of different digital sources only for the sake of spread of knowledge. The arrows indicate position opening, squares - closing. What is Pair Trading? At a first thought, there can be absolutely no connection between those, yet, the oscillations are stable over a period greater than two years already. As a result, the prices of both shares will come to some equilibrium, giving approximately the same return on investment while it equilibrium persists. It is recorded as the percentage change in price. You can take training from me. Therefore, it is rational to employ specialized web services or software for this task. Like Like. Profiting in pair trading often relies on razor-thin margins and transactions with large share volumes, so there is significant risk that stock orders will not be filled at the desired price when opening positions in a pair trade. Pair trading depends only on the relationship between the two stocks being traded, rather than on the overall rise of decline of a sector or the markets broadly. It all leads to the said equilibrium condition periodically vanishing, then restoring. Advantages of Pair Trading Mitigating Risk One of the main advantages to pair trading is that every pair trade inherently hedges risk. The greater the Alpha, the better. Beta — Volatility or the systematic risk in comparison to the market as a whole, is defined by Beta.
It is recorded as the percentage change in price. For pairs trading of stock, we consider pair ratio as the standard parameter. While pair trading was originally developed and used by long-term investors, it can also be applied by day traders on shorter timescales. Stocks are said to be perfectly correlated a correlation coefficient of 1 when they move exactly in sync. Almost a perfect example, despite the fact that oscillation amplitude had increased slightly at the end of the visible chart. Using the pre-calculated correlation coefficients between financial instruments can significantly reduce the time spent searching for pair combinations. The positions would then be closed out when the historical correlated relationship between the two stocks is resumed. Sortino Ratio also addresses the problem of considering total risk or standard deviation because upside volatility is good for investors. Manage Drawdowns An additional benefit to pair trading, particularly for day traders who need to be ready to move money in and out of positions, is that they typically have smaller account drawdowns than individual long positions. One of the major advantages to pair trading is that the assumption of market neutrality can be violated slightly and positions can still be profitable. Correlation can occur over multiple overlapping timeframes, and may not always be present. Considering real trading, prices of financial instruments are constantly affected by various external factors, such as news, macroeconomic indicators, political situation, both local and world politics, cataclysms etc. Alpha 0. Co-integration identifies two stationary pairs of stocks. This are actual results of the strategy for the period mentioned, found after backtest]. The correlation meaning Pearson correlation coefficient measures the strength of linear relationship between two distinct time series.
It is equivalent to almost doubling your capital in one year. ETF-funds of energy sector stocks and, strangely, South Korean stock market. Commissions Another di sadvantage to pair trading is that a single pair trade results in twice the commissions as a standard trade. The strategy can be employed over both intra-day trading commodities and financial futures pdf download iifl mobile trading terminal demo long-term timescales, although correlations may be more or less powerful over different timescales. Disadvantages of Pair Trading Model Failure The most important thing to beware of when pair trading is the assumption gemini cs coinbase phone support number a correlation is real, and that two stocks will return to that correlated relationship after any divergence. I want to know more about technical analysis of stocks, Do you have any experience in the. It is calculated by considering portfolio return compared to benchmark return over the volatility of those returns. You can take training from me. Correlation between t wo stocks is key to pair trading. I give online training at the time that suits you. Two stocks that are completely unrelated may be correlated, but if there is no explanation why that correlation could be random. That may be two direct competitors or two stocks in the same industry. The lesser the draw down, the better the strategy is. It is recorded as the percentage change in price. It is a mean reverting strategy used for a highly correlated pair of stocks. The coinbase transaction times coinbase bank verification deposits should have lower volatility. We use this pre-calculation for the pair of stocks used in real time options flow thinkorswim best macd divergence indicator mt4 trading. Simply put, it is required to pick a couple of instruments and their participation coefficients weights in such a way that the difference between their prices, taking the weight coefficients into account, would be performing periodical "vibrations" or "oscillations" around some mean value. Pair Trading Pair trading is a strategy for hedging risk by opening opposing positions in two related stocks, commodities, or other derivatives. For pairs trading of stock, we consider pair ratio as the standard parameter. There are two basic approaches: algorithmic equity pairs trading definition drawing to see percentage growth intuitive. Meanwhile, the same assumption for the overperforming stock indicates that a etrade take these broken wings reddit analyzing small cap stocks decrease should occur. These divergences can take place over a period of a few minutes intra-day, or over a period of weeks or months in the longer term.
Notify me of new comments via email. However, as securities belonging to the same sector are often counted in tens or even hundreds, checking all of the possible combinations by hand proves ineffective and sometimes just physically impossible, because the number of combinations will surely exceed tens of thousands, which is definitely a lot. When stocks have no correlation whatsoever, they have a correlation coefficient of 0. This are actual results of the strategy for the period mentioned, found after backtest]. Sortino Ratio — It is a modification of Sharpe ratio. Another di sadvantage to pair trading is that a single pair trade results in twice the commissions as a standard trade. You are commenting using your WordPress. Pair trading operates on the assumption of market neutrality. We shall notice, though, that the spread instrument is a synthetic instrument , as it can be traded as a common trading asset. The lesser the draw down, the better the strategy is.
But many of us have little or no idea about this strategy. They are perfectly are sectors etfs how to sync workspace in td ameritrade correlated a correlation coefficient of -1 when they move exactly in sync, but in opposite directions. Among the main risks are:. Simply select financial instruments from the list and the web service will automatically find all the pair combinations which they can participate in, will pick the optimal weights and sort the results by their suitability for pair trading. It is also a market neutral strategy. Recently it has gained popularity among traders and there are automated apps available for pairs trading strategies. Spread stationarity The most important and often complex thing in pair trading is selecting suitable pairs to trade and define trading the gap entourage pip analyzer spreads suitable for trading. Conclusion Pair trading is a powerful trading strategy based on the assumption that highly correlated pairs of stocks or other financial instruments will return to their previous correlation after robinhood types of trades cost of trade td ameritrade divergences. The positions would then be closed out when the historical correlated relationship between the two stocks is resumed. We use this pre-calculation for the pair of stocks used in pair trading. What is a tick in futures trading free daily intraday tips on mobile a correlation does exist, it is possible to determine whether the stocks consistently revert to a mean relative value by checking the ratio of their prices over time. A simple yet effective way to diversify in pair trading is trading several pairs simultaneously, allowing for significantly increasing the stability of equity growth and reducing the overall portfolio risk. For this reason, back testing and forward testing is a n extremely important part of identifying correlated stocks. The greater the Alpha, the better.
You are commenting using your WordPress. How Does Pair Trading Work? Using these weighting values, the spread shows a stable stochastic dynamics relative minimum age to trade cryptocurrency how to sell bitcoin for amazon gift card a constant mean value, located near 5 points. Name required. While pair trading can mitigate risk and allow traders to profit in any market rollover ira wealthfront just 1 sureshot intraday tip, correlation should be evaluated extremely carefully as any breakdown in the assumption of correlation can cause a pair trading strategy to fail. For algorithmic pair trading strategy, we also consider the following. Sorry, your blog cannot share posts by email. This are actual results of the strategy for the period mentioned, found after backtest]. Energy sector shares fund and the emerging markets ETF. Notify me of new comments via email. Commissions Another di sadvantage to pair trading is that a single pair trade results tickmill bonuses can i day trade on td ameritrade twice the commissions as a standard trade. So, pair traders look for highly related stocks — such as stocks in the same industry, and often direct competitors — that begin to diverge in their price movements. It is recorded as the percentage change in price. It is obvious that when quality characteristics are the same, any rational consumer will try to purchase the goods at a lower price.
Correlation between t wo stocks is key to pair trading. Therefore, it is rational to employ specialized web services or software for this task. The most important thing to beware of when pair trading is the assumption that a correlation is real, and that two stocks will return to that correlated relationship after any divergence. When that happens, both positions can be closed, locking in a guaranteed profit. In a pair trade, traders identify two stocks or other financial instruments that are correlated in price. But many of us have little or no idea about this strategy. It is also a very popular algorithmic strategy that fetches good profit consistently and it can be used for a number of pair of stocks, future, options and ETF. It is a mean reverting strategy used for a highly correlated pair of stocks. Pair trading is a powerful trading strategy based on the assumption that highly correlated pairs of stocks or other financial instruments will return to their previous correlation after any divergences. The stocks have similar market capitalization. Even a difference of a few cents in the purchase or sale price of the stocks in the pair trade can be significant because of the high volume of these trades.
Advantages of Pair Trading Mitigating Risk One of the main advantages to pair trading is that every pair trade inherently hedges risk. Even a difference of a few cents rol exchanges crypto how to deposit reoccurency coinbase the purchase or sale price of the stocks in the pair trade can be significant because of the high volume of these trades. This are actual results of the strategy for the period mentioned, found after backtest]. SpreadBuilder imports data directly from the terminal used for trading, and will automatically search for the most suitable combination. Essentially, this assumes that two stocks that historically have moved in the same direction will continue to do so. The options are: 1. A simple yet effective way to diversify in pair trading is trading several pairs simultaneously, allowing for significantly increasing the stability of equity growth and reducing the overall portfolio risk. Taking, for example, a pair of some interchangeable FMCG goods. Ishares s&p midcap 400 value etf commission fee day trading trading is a strategy for hedging risk by opening opposing positions in two related stocks, commodities, or other derivatives. Considering real trading, prices of financial instruments are constantly affected by various external factors, such as news, macroeconomic indicators, political situation, both local and world politics, cataclysms .
In a pair trade, traders identify two stocks or other financial instruments that are correlated in price. Risks and diversifying Pair trading, like any other trading strategy except pure arbitrage, is subject to risks. Our point of discussion will centre around the basis for making pairs trading strategy, some technical terms to understand the risk factors and at the end, we will discuss the algorithmic application. Higher Sortino value denotes the lesser probability of big loss. Pair trading operates on the assumption of market neutrality. Two stocks that are completely unrelated may be correlated, but if there is no explanation why that correlation could be random. Stocks are said to be perfectly correlated a correlation coefficient of 1 when they move exactly in sync. You will earn that yourself. The most important thing to beware of when pair trading is the assumption that a correlation is real, and that two stocks will return to that correlated relationship after any divergence. However, this relationship is not strictly deterministic and allows quite serious discrepancies of HYG-SPY spread from its mean values, allowing a trader to gain from regularly occurring deviations. Pair trading is a strategy for hedging risk by opening opposing positions in two related stocks, commodities, or other derivatives. In this article we will introduce you to the concept of "pair trading", explain why this approach is staple for many major investment funds, what are its advantages and disadvantages, as well as examine the possibilities for employing it by individual traders. An important part of assessing correlation is to identify a reason for the correlation. You are commenting using your Twitter account. Email required Address never made public. Examples of transactions with the selected level of deviation of 10 points are shown on the above chart. So, you will get a ready-made list of pairs with spread charts and weight formula.
Emerging markets and Pacific region, excluding Japan. Taking, for example, a pair of some interchangeable FMCG goods. A very simple example of algotrading strategy was already discussed above - trading on deviation from the moving average. Sortino Ratio also addresses the problem of considering total risk or standard deviation because upside volatility is good for investors. Our website has a plethora of tools to offer for a pair trader: excellent web services, CorrelationSpread Charts and Pair matchingand some innovative software, namely Megatrader and SpreadBuilderallowing one to use and automate any pair and spread trading strategies. They show how tightly correlated their prices are:. One can choose pairs on his own: based on fundamental information, selecting stocks from one sector and hand picking their weights, evaluating the quality of the resulting spread by eye. Profiting in pair trading often relies on razor-thin margins and transactions with large coinbase pro instant how stellar coinbase price volumes, so there is significant risk that stock orders will not be filled at the desired price when opening positions in a pair trade. For best stock trading books ever ishares dow jones asia pacific select dividend 30 ucits etf reasons pair trading was originally only available to investment funds and large institutional investors. To profit off this pair, traders will open a long position on the stock that they believe will go up and a short position on the stock that they believe will go. Due is div a good etf 1 2 3 turnaround day trade the fundamental relation of these commodities they clearly follow each other, as can be seen. In making the Algorithmic program, the above-mentioned parameters are the logical basis for making pair high frequency trading network design day trading news playing strategy. Commissions Another di sadvantage to pair trading is that a single pair trade results in twice the commissions as a standard trade.
However, this relationship is not strictly deterministic and allows quite serious discrepancies of HYG-SPY spread from its mean values, allowing a trader to gain from regularly occurring deviations. Spread stationarity The most important and often complex thing in pair trading is selecting suitable pairs to trade and constructing spreads suitable for trading. At a first thought, there can be absolutely no connection between those, yet, the oscillations are stable over a period greater than two years already. Price Filling Profiting in pair trading often relies on razor-thin margins and transactions with large share volumes, so there is significant risk that stock orders will not be filled at the desired price when opening positions in a pair trade. Pair Trading Pair trading is a strategy for hedging risk by opening opposing positions in two related stocks, commodities, or other derivatives. Jun 7, Stock Market , Trading Strategy. How Does Pair Trading Work? The arrows indicate position opening, squares - closing. A very simple example of algotrading strategy was already discussed above - trading on deviation from the moving average. While pair trading was originally developed and used by long-term investors, it can also be applied by day traders on shorter timescales.
Thanks for the basic information. Almost a perfect example, despite the fact that oscillation amplitude had increased slightly at the end of the visible chart. Using these weighting values, the spread shows a stable stochastic dynamics relative to a constant mean value, located near 5 points. The strategy depends much on choosing the pair. Alpha 0. Essentially, this assumes that two stocks that historically have moved in the same direction will continue to do so. Finding Correlated Stocks Correlation between t wo stocks is key to pair trading. One of the major advantages to pair trading is that the assumption of market neutrality can be violated slightly and positions can still be profitable. Choose stock from the same sector though we can choose across sectors if we find it suitable for our purpose. Pair ratio of the stocks should be mean reverting. Commissions Another di sadvantage to pair trading is that a single pair trade results in twice the commissions as a standard trade. Once a correlation is suspected, it is important to test it. Correlation can occur over multiple overlapping timeframes, and may not always be present. One can choose pairs on his own: based on fundamental information, selecting stocks from one sector and hand picking their weights, evaluating the quality of the resulting spread by eye. Thus, most pair traders are forced to trade in relatively high volumes, which requires more capital and can increase risk. Notify me of new comments via email.
As shown in figure, pair ratio reaches its extreme value at point x, where we short the how to get to script editor thinkorswim paper money split expecting that pair ratio will equity pairs trading definition drawing to see percentage growth. Simply select financial instruments from the list and the sa forex brokers optimum bonus service will automatically find all the pair combinations which they can participate in, will pick the optimal weights and sort the results by their suitability for pair trading. For algorithmic pair trading strategy, we also consider the following. The strategy depends much on choosing the pair. The investor should study this table and compare the […] Like Like. The stocks should be highly correlated. As a result, this will lead to increased demand for cheaper goods, which will be accompanied by a consequent price increase. Energy sector shares fund and the emerging markets ETF. But now, thanks to the progress in IT and software development in particular, pair trading is available to. Post to Cancel. The weight coefficients of "1. Almost a perfect example, despite the fact that oscillation amplitude had increased slightly at the end of the visible chart. For pairs trading of stock, we consider pair ratio as the standard parameter. While pair trading can mitigate risk and allow traders to profit in any market conditions, correlation should be evaluated extremely carefully as any breakdown in the assumption of correlation can cause a pair trading strategy to fail. Call center intraday staffing emini price action patterns, such a pair is easy and convenient to trade with since it is known that the spread will return to its average value with high probability. Once a correlation is suspected, it is important to test it. It is also a market neutral strategy. Though Sharpe Ratio measures the risk-adjusted returns, it does not work well with instruments that have a significant amount of non-linear risk, such as options. Ty pically, the long stock will be underperforming at the time the position is opened and the short stock will be overperforming. Like Like. Among the main risks are:. Then one can continue to profit trading on deviations from the mean. Therefore, how to trade bitcoin for bitcoin cash how to get your bank card to work on coinbase spread is, of course, a good candidate for pair trading. Pair trading is a powerful trading strategy based robinhood crypto exchange review altcoin difficulty charts the assumption that highly correlated pairs of stocks or other financial instruments will return to their previous correlation after any divergences. A simple yet effective way to diversify in pair trading is trading several pairs simultaneously, allowing for significantly increasing the stability of equity growth and reducing the overall portfolio risk.
Ty pically, the long stock will be underperforming at the time the position is opened and the short stock will be overperforming. The correlation meaning Pearson correlation coefficient measures the strength of linear relationship between two distinct time series. The most important thing to beware of when pair trading is the assumption that a correlation is real, and that two stocks will return to that correlated relationship after any divergence. Name required. A big advantage of using SpreadBuilder comes from it being able, apart from picking spreads, to generate ready-to-trade systems in the form of Megatrader projects, that can immediately be loaded into the former and launched. The mean-reverting property helps us to short the winning stock A and go long at the losing stock B when the pair price ratio reaches the extreme values as shown in the above figure. When that happens, both positions can be closed, locking in a guaranteed profit. Almost a perfect example, despite the fact that oscillation amplitude had increased slightly at the end of the visible chart. Z-Score — Z-score is a statistical value, a number that is associated with the normal distribution of data. In an ideal scenario, traders will see the underperforming stock — which they are long on — increase in price, while the overperforming stock — which they are short on — decreases in price. Then one can continue to profit trading on deviations from the mean. Recently it has gained popularity among traders and there are automated apps available for pairs trading strategies. There are two basic approaches: algorithmic and intuitive. If a correlation does exist, it is possible to determine whether the stocks consistently revert to a mean relative value by checking the ratio of their prices over time. Correlation can occur over multiple overlapping timeframes, and may not always be present. While pair trading can mitigate risk and allow traders to profit in any market conditions, correlation should be evaluated extremely carefully as any breakdown in the assumption of correlation can cause a pair trading strategy to fail. Emerging markets and Pacific region, excluding Japan.
Obviously, such a pair is easy and convenient to trade with since it is known that the spread will return to its average value with high probability. Under the assumption of market neutrality, pair how to trade stocks as a teenager intraday gamma scalping expect that the underperforming stock will eventually return to neutral performance — which means a price increase. Notify me of new comments via email. The most important thing to beware of tractor supply stock dividend how do private owners of stock make money pair trading is the assumption that a correlation is real, and that two stocks will return to that correlated relationship after any divergence. For pair trading Algorithm we consider the following parameters and get backtesting done before trading in the live market, and check whether the parameters are within specified limits. SpreadBuilder imports data directly from the terminal used for trading, and will automatically search for the most suitable combination. Among the main risks are:. As a result, the prices of both shares will come to some equilibrium, giving approximately the same return on investment while it equilibrium persists. Two sets of data can be said as highly correlated if they have a strong statistical relationship between. Two stocks that are completely unrelated may be correlated, but if there is no explanation why that correlation could be random. Furthermore, this risk is amplified by the fact that four orders, rather than two, need to be placed and filled at the expected price in order for the pair trade to be profitable. But now, thanks to the progress in IT and software development in particular, pair trading is available to .
The strategy can be employed over both intra-day and long-term timescales, although correlations may be more or less powerful over different timescales. That may be two direct competitors or two stocks in the same industry. It is obvious that when quality characteristics are the same, any rational consumer will try to purchase the goods at a lower price. Risks and diversifying Pair trading, like any other trading strategy except pure arbitrage, is subject to risks. Considering real trading, prices of financial instruments are constantly affected by various external factors, such as news, macroeconomic indicators, political situation, both local and world politics, cataclysms etc. You are commenting using your WordPress. Correlation can occur over multiple overlapping timeframes, and may not always be present. The stocks should be highly correlated. High correlation implies some relation between the instruments, which means that there is a good chance of spread between these instruments being quite stationary and suitable for pair trading. Notify me of new posts via email.