GKM

Spreading Oil and Natural Gas: A Post-Labor Day Plan

ME, I certainly do appreciate your tenacious attempts to educate us here. I wouldn't be able to do that calc simply because I don't have the raw data required nor the time and interest in programming the Monte Carlo simulation I envision would be definitive in overcoming the burden of proof.

Convergence without correlation is not possible for your purposes. Anything can converge against anything but you want there to be a reason (for which you have stated the substitutability of the two energy sources - as evidence by historical trends?) otherwise the spread is arbitrary. You must have negative correlation for your trade to work. I can't speak to spread margins but preservation of capital is imperative, I want trades that also give me more opportunity for success within my risk/reward parameters. If I trade oil and nat gas at the same time but separately, correlation is not at all necessary and in fact the lesser the correlation the better chance of success - as in modern portfolio theory.

In any event, best of luck with your strategy.