After analyzing this phenomenon I will initiate trade in both the counters assuming this decoupling phenomenon will vanish at some point of the day.
Similar argument can be drawn for index and stock in that perticular index segment. For example if by the mean of some mathematical simulation if I will identify X % change in any of the stock brings Y% change in any of the index then the deviation in any of the day can be called as decupling.
Once we identify the decoupling then we need to investigate the cause of the decupling. If the cause is due to the trader´s temporary behavior or local in nature then we will use this opportunity as a trading opportunity. But keep in mind we are using this opportunity as a trading opportunity same time we are honoring the cause.
Using the beta as the mathematical factors I have simulated hundreds of trades in the stock futures and found the success of this method even in the critical days of sharp fall and raise. All about this method you can find on my book on masters key to future and options.
25th sept 2009 1.sell sbi fut 1 lot at 2142 and buy icici fut 1 lt at 850 max loss Rs2k profit Rs3.5k beta hedge call- closed 1st october at Rs16000 profit
29th sept 2009 2.buy sbi fut 1 lt at 2149, sell icici bank fut 1 lt at 858 max loss Rs4.5k profit Rs4.5k intraday beta hedge call-lOSS TRIGGERED
30th sept 2009 3.buy hdfc bank 1 lt at 1606 and sell icici bk 1 lt at 868 max loss Rs4k profit Rs4k intrday beta hedge call-GIVEN PROFIT
buy hdfc bank fut at 1630 and sell icici bk fut at 894 max loss Rs7k profit Rs11k intraday beta hedge call -GIVEN PROFIT
You can make use of our beta hedge online calculator available under the calculator section of our web site to derive many interesting trade decission.This Calculator works all kind of World market. Do read the manual associated with the calculator to know more about the beta coefficient.