> 73% might be achievable just by looking at co-correlation. Up days and down days tend to run in streaks.
If that were true, there would be an exceptionally easy way to make money: Buy a future or option today based on yesterday's move. Leverage ad infinitum.
Random coin flips also tend to run in streaks, btw - in a few thousand throws, you'll probably have several 10 "head" streaks and several 10 "tail" streaks.
there would be an exceptionally easy way to make money: Buy a future or option today based on yesterday's move. Leverage ad infinitum.
This kind of co-correlation and general market direction is already baked into the option and futures prices. Also, they don't tend to fluctuate as much from day to day, since their prices reflect what the value will be on the contract delivery date, not what the price will be tomorrow. I'm not clear on what profit opportunity you're seeing.
Random coin flips also tend to run in streaks, btw - in a few thousand throws, you'll probably have several 10 "head" streaks and several 10 "tail" streaks.
And in a flat market, that's often the behavior you see. When the market starts trending, though, the coin starts acting 'rigged', and streaks in the prevailing market direction tend to become longer.
I do not know what this "co-correlation" that you speak of is, and google doesn't seem to either. Assuming you are speaking about day-to-day correlation:
I don't know what futures you were thinking of, but financial futures (single stock, index futures, currency futures) track the base value EXACTLY (but also taking into account interest rates, dividends, etc). If this weren't the case, there would be an immediate arbitrage opportunity.
Specifically, once you factor the interest rate out, the DJIA future and the DJIA index are in sync within seconds. The HFT traders take care of that.
And while it is true that the market does trend occasionally (more than a coin flip), timing the start and end of the trade is empirically very hard.
If you know the market is trending, why don't you buy a future betting on the trending direction, with a stop at 2 ticks above and below your entry price? If the market is trending, you have positive winning expectation.
Except the market doesn't work that way - and if you think the market is trending when it isn't, you lose money with this scheme.
If that were true, there would be an exceptionally easy way to make money: Buy a future or option today based on yesterday's move. Leverage ad infinitum.
Random coin flips also tend to run in streaks, btw - in a few thousand throws, you'll probably have several 10 "head" streaks and several 10 "tail" streaks.