Mar 12, 2008

Understanding Finanical Market: Arbitrage

From Wikipedia, Arbitrage is the practice of taking advantage of a price differential between two or more markets, the profit being the difference between the markets prices.

Fro example, China Petro & Chem is traded in both US and HK stock markets. The price between these two markets are different, it seems US price follows the movements of HK's in recent several months.

After converting HK share price to US dollars, the price differences can be shown:
DateListPlot[{ussnp, hksnp}, Joined -> True, Filling -> {1 -> {2}}, FillingStyle -> {Green, Red}, DateTicksFormat -> {"Month", "/", "YearShort"}]
The trick is to use Filling -> {1 -> {2}}, FillingStyle -> {Green, Red}, Green indicates HK price is higher than US price, the red means the opposite.

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