Hi all,
I am working on a simple mean reversion strategy.
Basic steps same as those in the course:
- Get a spread for 2 stocks.
- Get the moving avg of the spread, Upper band, and Lower band.
- Generate Signal base on the moving avg, and upper/lower band.
Just for the spread part in step 1, I don't understand the difference between this two method: - Use Price Ratio
- Simply Stcok 1 price / Stock 2 Price… and Use the Ratio to get moving avg, bands for signals.
- Use hdege Ratio and portfolio
- Get the hedge ratio from regression, contract portfolio using that hedge ratio, and then get moving avg on the price of that portfilio with hedge ratio.
What's the difference between these two?
They seems give me very similar result. But the first one just much easier.
Any idea?
Thanks.