Hedging synthetic pairs

Quoting tarrini65

Disliked

hi all

i would like to know your opinions about creating synthetic pairs

i am running a basket like this since two weeks, and it's closing in profit
once a day with low dd ,

eurjpy buy
usdjpy sell ( these two make eurusd long )
eurgbp sell
gbpusd sell ( these two make eurusd short )

the story is that due to the different pip value and volatility the basket goes in profit ....

is it a case or there are good reasons ?

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Quoting hanover

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First I would resolve the ring into the simplest possible position. In this case it is EU x UJ / EJ = 1 ('triangular equilibrium'). Hence any P/L comes merely from the imbalance in the trade sizes. You could calculate this imbalance, and simply trade a single pair; it effectively amounts to exactly the same thing.

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Quoting deanoracer

Disliked

Based on daily closing prices:
the following dates coincide with the max drawdown for each pair.
I have attached a speadsheet to see where the other pairs were for each date...

Not to impressive of numbers whatsoever for this example...
but will check back on Dec 31 closing to see the 1 year results of this example/scenario

Sell GBPAUD on Jan 1 2012 @ 1.51527... Max Drawdown Date: 5/30/12 -1030 pips
Sell AUDNZD on Jan 1 2012 @ 1.31298... Max Drawdown Date: 1/4/12 -37 pips
Sell NZDCAD on Jan 1 2012 @ 0.79358... Max Drawdown...

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