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generalisation of cointegrated stock pair strategies to multiple cointegration

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-...
1
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0answers
93 views

Pairs trading strategy: Portfolio returns and NAV

Currently trying a pairs trading approach using cointegration. Tried both formations: $$log(P_t^A)=log(P_t^B) \hat{\gamma}+\hat{\mu}+\epsilon_t \hspace{0.5cm} (1)$$ $$P_t^A=P_t^B \hat{\gamma}+\hat{\...
9
votes
1answer
2k views

How to calculate Sharpe Ratio from $ returns?

I have a pairs strategy that I am trying to calculate the sharpe ratio for. Currently I am using python for my analysis and calculation. I have a dataframe that contains the cumulative returns in $'s ...
1
vote
1answer
3k views

Calculating the returns of a long/short strategy

I feel like an idiot asking this but i haven't found the answer anywhere. I have backtestest a paris trading strategy, while calculating the returns of the strategy I run into some problems when the ...
-1
votes
1answer
596 views

pair trading cointegration - calculating shares quantities traded, portfolio value and returns

I have a trading strategy based on the cointegration of X and Y where beta derived from the regression is 0.7. My initial capital to invest is 1000. My understanding that the quantities of X and Y to ...
2
votes
0answers
358 views

cointegration strategy

If it can be proved that two time series $$S_t^1=\alpha + \beta S_t^2 + \xi_t$$ representing stocks are correlated, with $\beta=-2$ and then are proved to be cointegrated, how a portfolio should be ...
4
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2answers
1k 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 ...
-2
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1answer
1k views

How to calculate the weight of the stocks using the linear regression?

I do a simple example with the follow three series(stocks prices): ...
25
votes
1answer
2k views

How do different methods and techniques used in pairs trading compare?

I was going through the paper of Avellaneda (2008) on stat arb and I found it interesting that he uses asset returns vs. their respective ETFs to compute the s-score. I am wondering if anyone has ...