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Pairs trading: Question on non-negative profits, size of the positions and trading signals
I'm trying to backtest Pairs Trading but have become a bit confused on the different methods of selecting pairs, how to look for trading signals and what size of the positions to take in the assets.
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Mean Reverting Spread
I have constructed a mean reverting spread using two indexes. I know they have to be mean reverting, but when plotted side by side they are mean reverting for a little bit and then deviate and head ...
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Lagging Beta Strategy
Came across a method involving pairs in the book Hedge Fund Market Wizard:
Given a Stock(or Collective of instruments)that follows closely to say Dow index with a beta<1(very short term) but ...
