HINDALCO - TATACHEM Pair Analysis

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End-of-day divergence (Standardized residual) is -2.3.
Half life of pair is 9.45.
Real time (live) divergence is calculating using following formula:
[tatachem_price - (1.96 * hindalco_price) - 2.71]/30.6

(where 2.71 is mean error and 30.6 is standard error)
Technical strength of HINDALCO is 6.7. (Support & Resistance)
Technical strength of TATACHEM is 1.7. (Support & Resistance)
Recommendation
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Entry Criterion: Take positions when divergence becomes (+/-)1.5. And exit positions when divergence becomes (+/-)0.0.
Stop Loss: Put your stop loss when divergence becomes more than 2.0 or less than -2.0. We suggest you always use stop losses.
Note: When you trade in futures, keep in mind the expiry date of futures as divergence might not end before expiry date.
Analyse any other pair:

How to choose pairs?
Choose stocks from same sector/subsector.
Use stock with large market capitalization as first stock.

Charts

HINDALCO Futures - NSE
Expiry Date Close Price Open Interest Number of Trades No of Contracts Underlying Closing Price
August 27, 2020 185.0 26096700.0 11270.0 11270.0 184.95
September 24, 2020 184.95 2446700.0 356.0 356.0 184.95
October 29, 2020 185.05 51600.0 31.0 31.0 184.95
Lot size: 3500.

TATACHEM Futures - NSE

Expiry Date Close Price Open Interest Number of Trades No of Contracts Underlying Closing Price
August 27, 2020 295.65 3938000.0 1167.0 1167.0 295.0
September 24, 2020 296.4 192000.0 52.0 52.0 295.0
October 29, 2020 296.0 28000.0 5.0 5.0 295.0
Lot size: 900.
Click here for backtesting results.

HINDALCO-TATACHEM Analysis with different time frames and thresholds

Time Frame 3months, Entry Threshold 1.5, Stop Loss Threshold 2, Total Profit 47888.3111719
Time Frame 3months, Entry Threshold 1.5, Stop Loss Threshold 2.5, Total Profit 20686.2050565
Time Frame 3months, Entry Threshold 2.5, Stop Loss Threshold 3, Total Profit 10669.6290965

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