Class: arbitrage oscillator Trading type: intraday trading Time frame: 1 hour Purpose: trading on divergence Level of aggressiveness: standard
Arbitrage - several logically related transactions aimed at profit from the difference in prices for the same or related assets at the same time in different markets.
Pair trading is a trading strategy based on trading a pair of financial instruments that have some fundamental or statistical relationship, expressed in the fact that the price ratio of these instruments tends to return to a certain average value in the long term.
“Convergence/divergence indicator (CDI)” using correlation analysis from different time frames provides information about statistical relationship between pair of assets.
Correaltion - a statistical relationship between two variables, showing that a larger value (in the case of positive, direct correlation) or a smaller (in the case of negative, inverse correlation) corresponds to a larger value of one value in a certain part of the cases.
The correlation coefficient is a statistical measure of the strength of the relationship between the relative movements of two variables.
The values range between -1.0 and 1.0.
A correlation of -1.0 shows a perfect negative correlation, while a correlation of 1.0 shows a perfect positive correlation.
A correlation of 0.0 shows no linear relationship between the movement of the two variables.
“Convergence/divergence indicator (CDI)” a) allows to find assets where pair arbitrage is possible and determines the moments in time and prices when the conditions for pair arbitrage are ideal.
“Convergence/divergence indicator (CDI)” evaluates the statistical relationship between pair of assets in a particular period of time and, if it is available, seeks for the divergence in price fluctuations of these “identical” assets.
“Convergence/divergence indicator (CDI)” displays the current value and dynamics of the Pearson correlation coefficient for a pair of selected assets based on daily (thick blue line) and hourly (thin red line) data.
Basic parameters: - asset 1 (name of the trading instrument 1); - asset 2 (name of the trading instrument 2); - period_d (number of periods used to calculate daily correlation). - period_h (number of periods used to calculate hourly correlation).
To gain the access to this indicator, please, send a private message to Trade24Fx.