Continuing on the same thought! But this time I use two stocks with prices that are independent. A correlation analysis of all stocks in the S&P 500 for 2009 was run and I pick the two stocks with the highest independent value, that is a value close to zero. The two stocks chosen were DHI (Horton) and FLR (Flour). Two back trace analysis runs are done for for the two stocks over the last 360 calendar days - again analyzing SMA over a period of 2 to 48 days.
Here is a chart of DHI as primary and FLR secondary using a $10000 initial investment.
With scenario a period of 7 days makes the best return of 45% while a period of 37 has a loss of about 17%,
Here is a chart of FLR primary and DHI secondary:
With this scenario a period of 40 days has an increase of about 45% and period of 9 has a loss of about 14%.
During the past year FLR had a very positive move while DHI was somewhat flat. So how would you know which stock to make primary and the other secondary? And what SMA period should be chosen? If you picked FLR as primary would you know to pick the longer SMA period and if you went with DHI would you pick the shorter.
Here is a chart of DHI as primary and FLR secondary using a $10000 initial investment.
Here is a chart of FLR primary and DHI secondary:
With this scenario a period of 40 days has an increase of about 45% and period of 9 has a loss of about 14%.
During the past year FLR had a very positive move while DHI was somewhat flat. So how would you know which stock to make primary and the other secondary? And what SMA period should be chosen? If you picked FLR as primary would you know to pick the longer SMA period and if you went with DHI would you pick the shorter.
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