I have automated Pair trading strategies running on both CME Futures and cryptocurrency perpetual pairs. I can chose between different spread calculation type and I noticed that the one I thought was the more "efficient" was in fact really bad. All position entries are triggered when the spread cross over or under a Zscore threshold. Here one of the few calculation type I use:
- Spreased based on the residuals of the Ordinary Least Square of the Log returns of the two contracts -> I find this one extremly noisy and in fact really not meaningful, so my question is: Am I doing it correctly ? Should I smoothen the spread signal by averaging it ? The Log return is currently calculated based on the return between two successive "candles" of 30min timeframe. Increasing the timeframe doesn't solve the issue really.
- Spread based on a simple Log(y/x) where x is the independant variable and y is the dependant variable. This one is quite reliable and gives really good returns and risk management.
Would you be kind to lead me in a good direction, maybe I'm doing something wrong ?
Thanks !
