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Correlation between index and future?


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Correlation between index and future?

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  #1 (permalink)
parapants
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Yep, it's a newb question. I have thick skin...I'm ready.

Just starting out. All book knowledge, and not real world. Watched the Russel 2000 Index, then watched the E-mini Russell 2000: December 2021. Shouldn't fair value keep the bid/asks pretty close to the index + carrying costs (dividends/interest ect). I'm seeing +2 all the way to -6 points when comparing the index with the bid/ask. Am I missing something?

"If" I can spot trends in the Index, getting in/out of the future with such a big swings sounds impossible. My goal was to basically trade the index with the future.

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  #2 (permalink)
 josh 
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parapants View Post
Yep, it's a newb question. I have thick skin...I'm ready.

Just starting out. All book knowledge, and not real world. Watched the Russel 2000 Index, then watched the E-mini Russell 2000: December 2021. Shouldn't fair value keep the bid/asks pretty close to the index + carrying costs (dividends/interest ect). I'm seeing +2 all the way to -6 points when comparing the index with the bid/ask. Am I missing something?

"If" I can spot trends in the Index, getting in/out of the future with such a big swings sounds impossible. My goal was to basically trade the index with the future.

Do a sanity check to ensure that both feeds are real time. It sounds like you are looking at one feed which is delayed.

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  #3 (permalink)
parapants
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Sanity check (on the quotes) completed. I'm getting CME Level 2 and the index (Russel 2000) is real time. I put a link to a screen shot below. At the time Russel 2000 (RUT) was 2311.3643 and the RTYZ1 (Russell Mini 12/21) was 2308.40 / 2308.60. I know they won't be the same as the futures have carrying costs/dividends. But, they swing +2 / -6 between the two (-3 in the photo). Any other thoughts? Does the screen shot point out my error possibly?

Well, I can't post a link. Replace " dot " with "." prntscr dot com/1xbcyl1

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  #4 (permalink)
 josh 
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parapants View Post
Sanity check (on the quotes) completed. I'm getting CME Level 2 and the index (Russel 2000) is real time. I put a link to a screen shot below. At the time Russel 2000 (RUT) was 2311.3643 and the RTYZ1 (Russell Mini 12/21) was 2308.40 / 2308.60. I know they won't be the same as the futures have carrying costs/dividends. But, they swing +2 / -6 between the two (-3 in the photo). Any other thoughts? Does the screen shot point out my error possibly?

Well, I can't post a link. Replace " dot " with "." prntscr dot com/1xbcyl1

Sorry chief, I don't see a picture at that link. Would recommend a reputable image host.

When I overlay the index and futures, I see what you mean. I've observed this with other indices before, and frankly, I don't know why. For example, using 1 minute bars you'll see the index had a high-low range of 0.2 points in a minute, while the same futures bar had a 1.5 point range. This is what you mean, right?

I'm not sure why this is. SPX does not do this, for example. Perhaps the Russell is just a looser market? One thought is that if you actually wanted to arb vs the index, you have 2000 stocks, and it will be very difficult to arb a basket that large, even if you just some subset of those. Perhaps it's just harder to quote all of the extremes of the 2000 component stocks? I'm grasping here, and I'd love to know the answer. Thanks for asking this question.

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  #5 (permalink)
 britkid99 
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Can I ask you where you are getting the Russell 2000 cash index from? I used to have it with Interactive Brokers but now I am using Sierra Chart's Denali feed I can no longer get it.

I had observed this also. If you overlay the index and centralize it, the futures always peaks above and below the index peaks. This can make a good timing mechanism for the futures.

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 josh 
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britkid99 View Post
I had observed this also. If you overlay the index and centralize it, the futures always peaks above and below the index peaks. This can make a good timing mechanism for the futures.

Sure, but how many times did the futures peak above, and keep going (with the index of course also increasing)? Looking in hindsight at past charts this way is dangerous, because you only see times it works, because those are the only times that are actually visible as local highs/lows. Though I doubt there is any actual edge here, you can really only do it by identifying it in real time and forward testing it, IMO.

Always test your idea before assuming it has validity, and better yet, be skeptical of anything that seems so simple. Funds employ Ph.D's in discrete math, paying (collectively) billions in research, to gain an edge in markets. Never assume that something so simple has merit until it's tried!

For us with small pockets (compared to funds, I mean), simple can be best. I'm not arguing with that notion. Just that, make sure it's tested properly.

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 britkid99 
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Agreed Josh. You need to confirm with Tick-TF reversing also or whatever you would use.

I see you are using AMP-CQG as am I. So where does your Russell Cash Index come from?

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 josh 
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britkid99 View Post
Agreed Josh. You need to confirm with Tick-TF reversing also or whatever you would use.



I see you are using AMP-CQG as am I. So where does your Russell Cash Index come from?

I use TradingView for good charts of stocks and indices, symbol RUT. Actually as I look at it now, the intraday RUT at TV is a CFD so maybe that's not reliable as a proxy for the index.

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