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Question: as it is well known, there are strategies to trade pairs of stocks which are known to be co-integrated. See for instance here:

https://medium.com/auquan/pairs-trading-data-science-7dbedafcfe5a

is there something analogous when dealing with a family of stocks which are not pair-wise co-integrated, but are nevertheless co-integrated as a whole?

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    $\begingroup$ dispersion trading? Long/short the index and its components, i.e. with a view on implied vs realized correlation $\endgroup$ – Vitomir Jul 4 at 15:32
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    $\begingroup$ Alternatively long a stock and short an ETF for the whole sector that the stock belongs to, or vice versa. $\endgroup$ – Alex C Jul 4 at 16:19
  • $\begingroup$ Vitomir and Alex, thanks to both. Any white paper where this is discussed in depth? $\endgroup$ – Mirco A. Mannucci Jul 23 at 13:07
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Chapter 2 of the Applied Quantitative Methods for Trading and Investment may be useful. You can download the excel file from the companion website.

Here is the link and the Download link is at the bottom: https://www.wiley.com/en-gb/Applied+Quantitative+Methods+for+Trading+and+Investment-p-9780470871348

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  • $\begingroup$ Magic, thanks! Will sure check it out $\endgroup$ – Mirco A. Mannucci Jul 23 at 13:08

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