Normalized Stock Prices

I got e-mail asking about normalized stock prices. Alas, I never heard of such an animal. ** So I google and find a jillion definitions of "normalized" (when it comes to stock prices). However, it was intended to identify pairs of stocks whose prices tend to move together. Then, if they diverge (A goes UP while B goes DOWN), we expect them to converge to historical relationships ... so we sell A and buy B. So then I find this reference where, by normalized, they mean: (Price - Mean) / (Standard Deviation) So we (presumably) Collect a bunch of (historical) prices for stocks A and B. Calculate the Mean and Standard Deviation of each set. Replace each price (in each set) by the its corresponding normalized price. Stand back and stare at the pair of normalized prices ... and make some decision. I'm not convinced it'll do much good, but (as is my wont) I generate a spreadsheet to see what I can see. It looks like this: (Click on picture to enlarge) Okay, so I stare and stare ... Wanna play? Click here to download the spreadsheet. ** Ron McEwan writes and tells me that Excel does this ... but they call it "standardized" rather than "normalized".