# Tagged Questions

Pairs trading is a market-neutral trading strategy enabling traders to profit from virtually any market conditions: uptrend, downtrend, or sideways movement. This strategy is categorized as a statistical arbitrage and convergence trading strategy.

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### stop loss and a take profit algorithm [closed]

how I can implement a stop loss and a take profit algorithm for pairs trading strategy ? thanks for your cooperation regards
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### transaction costs in pairs trading strategy [closed]

I would like to know what types of transaction costs should I consider for pairs trading strategy and what their percentages are. Thanks to all for the help regards
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### pairs trading strategy return [closed]

i don't understand how the final return is Calculated in this part of the code matlab. r4 is the total return vector 'series' Represents the prices of companies. Specifically I'd like to learn the ...
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### What is the best source (book or article) to learn pair trading from for the layman?

Can someone suggest a resource with a clean cut explanation of pair trading?
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For example, suppose we were trading a strategy which buys one Brent contract and sells one Gasoil contract. The minimum price fluctuation for a Brent contract is \$10, and the minimum price ... 1answer 180 views ### If I am very fast (less than 10 microseconds latency) what would be the first strategy to execute? [closed] Let's assume I found the holy grail of low-latency trading (which I didn't). For educational purposes, what would be the first strategy I would direct my trading code? 1answer 237 views ### How does Volatility Pairs Trading work? I've read some material related to pairs trading for equities and I understand the process of finding non-stationary pairs price series that can be cointegrated to form a stationary series. The basic ... 2answers 125 views ### Need help on cointegration I tried to test stock pairs for pairs trading. There are two questions I am not sure. I am not using ADF to test the log difference between two stocks. But I also see people using Johansen test. ... 1answer 111 views ### How to projectP&L or drawdowns on pair trading , trading and portfolios? This is for planning and risk management. I am stuck on the following thoughts - Back-test the trading strategy for a period similar to the one you expect and then project. Do the above using ... 2answers 159 views ### 2 stocks, no shorting vs shorting. (concrete questions, mean-variance) I'd appreciate help with the following questions. Suppose there are two stocks$A$and$B$with expected returns$E_A, E_B >0$and volatilities$v_A, v_B >0$, respectively . Also, suppose ... 1answer 64 views ### Replicating the short part of a long-short trade using inverse ETFs I devised a pair trading strategy going long XXX and short B*YYY. B is the quantity of shares of YYY I need to short. The problem is I canâ€™t go short on YYY, but there is an inverse ETF for YYY ... 1answer 208 views ### Ornstein versus AR(1) for modeling stationary data I've come across several posts regarding parameter estimation for O-U models given some stationary data (say, some sort of mean reverting spread), but I can't seem to find an answer as to why modeling ... 2answers 152 views ### Avoiding negative spread in pairs trading I'm constructing money-neutral spread by this formula: Spread = log(P1) - log(P2), where P1 and P2 is prices of two instruments But sometimes spread can get into ... 0answers 81 views ### Detrending before cointegration When checking for co-integration , is it necessary to detrend the time series? What is the best way to go about it? 1answer 368 views ### Position Sizing For Ratio Pairs Trade Ok, let's say I'm trading a spread of two stocks, X & Y, The spread is calculated as a ratio (Spread = X / Y). I use rolling stats to calculate the mean, standard deviation and hence the z-score ... 0answers 237 views ### pairs trading detrend the spread I have calculated a hedge ratio that generates a mean reverting spread (stationary, without trends) 60-70% of the time. But the remaining 30% of the time, it seems like there is a trend in the spread. ... 0answers 238 views ### pairs trading or long short strategy given volatility of the stocks Suppose I have 2 stocks and the only thing I know about them is their volatility and that they cointegrate. Let's say vol of stock A is 25% and B is 20%. Will I be able to find a hedge ratio only ... 1answer 1k views ### ADF test in R yielding perfect cointegration. How is this possible? I am using the famous conintegrated pairs tutorial to just different stocks for cointegration. The adf.test yeilds perfect cointegration, which I feel must be incorrect. Here is why: When I run ... 2answers 207 views ### Stat Arb Equity Pair Position Trigger I am new to pairs trading and am in the process of constructing the code for backtesting a basic pair trading strategy. While I understand the basic idea behind the pair trading strategy, I am having ... 0answers 338 views ### 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 ... 1answer 418 views ### main arbitrage & statistical arbitrage concepts can we please summarise here some of the basic concepts, tools used in arbitrage and statistical arbitrage in real life? ARB: benefit from price difference on same asset ARB: difference between ... 1answer 527 views ### Pairs trade CDS contracts using cointegration Recently I have looked at some sovereign CDS spreads (of the Nordic countries to be precise) and have tested for cointegration in the levels (i.e. untransformed) and logs of the spreads. Tests ... 1answer 786 views ### What is the proper way to calculate returns for Pair Trading? Edit I am assuming that I don't need to use margin account to short here: What is a standard way to calculate return for pairs trading strategy? For example, I bought 100 dollars worth of a loser ... 3answers 1k views ### 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. ... 1answer 1k views ### What different methods of pairs selection exists? (For Pairs trading) (I'm quite new to quant finance so I'm not sure if this is an eligible question.) I've decided I want to backtest pairs trading on the Nordic stockmarket. So I would guess there exists different ... 1answer 692 views ### Multiple (linear) regression I am looking for some inputs on a pair trading strategy that I am trying to improve with some semi-fundamental input. The basic idea is to use multiple linear regression to estimate the price of a ... 2answers 510 views ### Statistical significance of a pair trading strategy How can I test the significance of a pair trading strategy, i.e. that the H0 is "The strategy has no predicting power". I was considering to use the technique in Evidence Based Technical Analysis ... 1answer 388 views ### Performance Stats of Pairs Trades This is something I've been thinking about for a while but I can't reach a clear conclusion. When we calculate, for example, the profit factor for a pairs trading strategy, do we treat each pairs ... 2answers 745 views ### Cointegration trading: Ignoring pairs that aren't economically related Cointegration trading question What's the state of the art when it comes to choosing proper subsets of stocks/assets where cointegrating relationships aren't ignored as (likely to be) spurious? For ... 3answers 495 views ### Calculating the right portfolio(position size for each leg) in a Long/Short Strategy For a Long/Short Strategy, I have two stocks with different volatilities. How can I calculate the right position size for each leg? *The pair trading is not coming from co-integration but more as a ... 3answers 818 views ### Searching for pairs-trading in sub O(n^2 t) time Let there be$n$stock symbols. Let each stock symbol have exactly$t\$ ticks (with all ticks miraculously aligned.) We are now searching for potential pairs for pair trading. A brute-force solution ...
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Suppose the trade is between Index Options of two Indices X and Y which are quite similar (but not exactly). So for the equivalent strikes, one can quote option on Index X and cover in Index Y. But ...
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### How should I compute the Sharpe Ratio for mid-frequency pair trading strategy?

I have a pair trading strategy with positions that last 3-5 days and trades 2-3 times a month. By design, all the trades are profitable until the cointegration is broken. Should I calculate the ...
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### How to calculate the weight of the stocks using the linear regression?

I do a simple example with the follow three series(stocks prices): ...
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### How to build a mean reverting basket?

I have been playing with mean reverting pairs, but seems that most of the low hanging fruit (ie pairs) have been squeezed already. I would like to start with mean reverting baskets (>2 securities) in ...
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### How to build an execution trading system with CQG API?

I am currently using CQG for spread trading and have a spread trading strategy in CQG chart. I am trying to automate my spread trading strategy in CQG, but CQG told me to look at CQG API samples to ...
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### How would I calculate a stop on a pair trade? [closed]

I have a trading strategy that I use on single tickers. I'd like to start using it with pairs as well. However, I'm somewhat math challenged and not sure how to best calculate the stops of the ...
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### How does Kalman filtering of beta in pairs trading model work in R?

Could anyone show how this could be done in R? The dlm package seems to be a good start, but I can't really find any good examples to learn from. Currently I have ...
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### Should cointegration be tested using close or adjusted close prices?

When doing cointegration tests should I use the adjusted close price or just close price for the time series? The dividend of each stock is on different dates and can cause jumps in the data.