My main trading strategy is long/short equity pairs based on statistical methods so our web based Spread Analyzer is an essential tool for me. But even if your strategy is not based on statistical relationships our Spread Analyzer can also add value.
In addition to my long/short strategy I also trade options, and I’ve recently gotten in the habit of using our Spread Analyzer for that strategy too. The strategy involves buying cheap volatility so there is no direct connection to statistical arbitrage. Yet I find it’s useful to see how over or under valued a stock may be relative to the market or its peers, and how strong that statistical relationship is. For example, if I think volatility is beginning to look cheap in a particular stock but I can’t decide whether to buy or wait, I’ll run the stock through the Analyzer against the market or its peers. If the stock looks expensive (with a strong statistical relationship) I will probably buy volatility. If it looks cheap I might decide to wait.
Whatever your strategy, there are probably dozens of ways the Spread Analyzer can be a useful tool. It only takes a few seconds. Try it and let me know what you think.
Written by Norm Winer. Follow me on Twitter and StockTwits.