Hello ,
For example if we find two stock having pair trading . How we will know how many of Y stock will correspond to X stock in statistical arbitrage .
Y = mx + C
In two commodities , you took same lot m - 5000 and n = 5000 . But if we take Tata Motors and tatamotors DVR , what will be 1 stock of correspond to n of X stock ?
Hope I am clear .
Hello Kaushik,
It is done in exactly the same way. Only thing is we need to take in to account the lot size. Suppose Nifty and Banknifty ratio, using regression, is 0.8. Nifty lot size is 75 but Banknifty is 20. So one nifty vs 75*0.8/20 lots bank nifty.
It is done in exactly the same way. Only thing is we need to take in to account the lot size. Suppose Nifty and Banknifty ratio, using regression, is 0.8. Nifty lot size is 75 but Banknifty is 20. So one nifty vs 75*0.8/20 lots bank nifty.