Given that the index products were slightly negative and AAPL/SKS were positive, one could potentially put on a pair trade. The statistic below the average is the R^2, this would be a key indicator for a pair trade

R-squared is a statistical tool used to measure the degree of correlation between two items. Correlation analysis allows investors to make predictions about an asset by looking at how it reacts with other market variables. Specifically, the number R^2, is used as a metric to measure how well outcomes can be predicted. Zero being weak and 1 being extremely strong.

This relates to pair trading. A trade like selling NDX and buying AAPL could hope for a weak R-squared…meaning, historically and statistically, the two products can move different ways…thus having the potential to have the short (NDX) down and AAPL (long) up (as they have proven on average historically)…or the opposite…for Mark Twain reminds us that there are, “Lies, damned lies, and statistics.” Statistics can be used to support a weak thesis.

Option volatility trades can also be made from this data.

If one was inclined to, the data suggests that the SPX, NDX, NKE, and TGT products do not move that much…so selling iron condors could be a potential trade. Either way, the data is interesting.

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Author

mark@keeneonthemarket.com