Long Short Signal

LSS is software that generates automated buy and sell signals with an impressive record of back-tested performance.LSS signals go long on stock A and short on highly correlated stock B when their ratio is temporarily distorted. Long Short Signal (LSS) maintains a database of JDS UNIPHASE (NasdaqGS: JDSU) and NORTEL NTWKS (NYSE: NT). These stocks are dogs that you would not normally buy but they serve an important purpose because their correlation coefficient is greater than .97 (1993-2008). (see the chart to the right showing JDSU vs NT) The program watches the ratio of (JDSU Price)/(NT Price) and when that ratio gets too low or too high, it generates a signal to buy or sell the ratio short. If the ratio returns to normal, LSS generates a SIGNAL to close positions resulting in a profit. If the ratio moves sufficiently in the wrong direction, a signal is generated to close positions resulting in a loss. Buying the ratio means buying JDSU and shorting NT. The program also maintains a simple book-keeping system. When there is a signal to open positions, the program indicates how many shares to buy or sell short. For example, the image below shows a cut-out of a typical signal (Sell the ratio to open) and BROKER ORDERS to sell short 9,154 shares of JDSU and buy 18,370 shares of NT. The number of shares depends on the value of the account. A ratio that is too low or too high implies a comparison to a normal value. The normal value is an estimation of recent values of the ratio. The normal value could be a moving average of the ratio. A moving average assigns equal weights to each member of the average but a digital filter assigns less weight to older members and more weight to newer members. This program uses a digital low pass electric filter to determine a normal ratio. The ratio is treated as a digital electric wave or signal. The wave or signal is passed through the low pass filter.