We usually hear about finding cointegrated pairs of stocks in pair trading, but it seems it is not as developed in fixed income despite the fact that the spectrum of securities is large (different parts of the curves, futures, FX, bonds...). Is there a reason for the absence of literature on this?

  • $\begingroup$ I have drafted an answer to this question however I would like some clarification to ensure that I answer your question as I am not entirely clear about what you're getting at with one of your statements. What does "(different parts of the curves, futures, FX, bonds...)" mean and why did you decide to include it in your question? Generally pairs trading is restricted to equities and other similar assets given how the general math around it works: the more instruments you add the less "clear" the strategy is. I'd appreciate either replying here or editing the question. Thanks. $\endgroup$ – Theodore Aug 15 '18 at 4:33
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    $\begingroup$ I just wanted to say that the spectrum of the instruments is large, for example in FX you have lots of pairs, in rates you could use different parts of the curve, you could also use futures or bonds...so in a sense you’re not restricted In the choice of your “pair” in fixed income. $\endgroup$ – ababoua Aug 15 '18 at 5:26
  • $\begingroup$ ok I see. Yeah, as far as being restricted to one pair in equities, that’s not always the case in practice. Strategies are researched and deployed across many assets, not just two. The shortest summary I can give you for my answer is yes, one can apply that same measures for pairs trading in equities as in fixed income instruments however it isn’t trivial and often not as lucrative as doing pairs trading in other classes. $\endgroup$ – Theodore Aug 15 '18 at 17:53

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