I'm looking at inter contract spreads. I would have thought it best to chart the number of contracts at the ratio you intend to trade them, so the chart is a reflection of your equity - like a simple outright or calendar spread.
e.g 1x RBH17 - 1x CLH17
Researching the topic, I have learnt this isnt the way to do it. Apparently, as there are 42 gallons to a barrel, I need to multiply RB leg by 42. Maybe it's been a long day, but to me that means the chart would be as if I was trading 42 RB's to 1 CL?
If I work out the P&L of buying 1RB, selling 1 CL, as legs, and covering a few days later, it does indeed seem as if the RB leg should be multiplied by 42 to reflect the daily P&L of the spread, but I cant understand why! Charting the NYMEX traded RB-CL crack also shows the price is multiplied by 42. The Season Algo chart of RBH17-CLH17 also shows the same pricing as if the RB leg is multiplied by 42.
So my question is: why should we chart contracts of different tick values at ratios that are different to that which they are traded? I'd be grateful for any insight. Probably something really obvious!...