Is that time series property called stationary? Can Detrending & Differencing really make nonstationary become stationary?
http://www.investopedia.com/articles/trading/07/stationary.asp
Arbitrage Strategy
- Thread starter Hammy27
- Start date
Is that time series property called stationary? Can Detrending & Differencing really make nonstationary become stationary?
http://www.investopedia.com/articles/trading/07/stationary.asp
Quote from Hammy27:
Oh it's not arbitrage in the sense that I buy the same stock on different exchanges to generate a profit. As you said, I wouldn't have an edge!
But I can do some stats on serial correlation, stationarity and so on. And cause I believe it's hard to compete on 2-stock basis I built a portfolio.
How I choosed the stocks? I asked Bloomberg to display me the ones I need to generate the maximum possible profit...
No seriously, I've got 2 criterias which I use for selection. I first choose a stock that I like and then I'll let Bloomberg find the 9 others I will need to build the strategy. So I do not fit anything. And: The stocks are the same for the whole time-frame.
But back to my initial question: if we assume that the backtesting is accurate, would you invest in such a strategy?
I'm currently not sure if I will... I will probably trade the portfolio on Bloomberg first for to see how it goes in the near future.
I don't know where the argument is? I simply said that mean reversion pair trading is a form of statistical arbitrage. I never said it was a form of risk arb, which also a form of arbitrage. If you reference any academic papers or literature on mean reversion trading of pairs, they will refer to at as a form of statistical arbitrage.
The conversation started with the OP bringing a stat arb strategy. He himself says that he is relying on "serial correlation and stationarity". If anything it looks like he was creating basket pairs which are a form of pair trading. Both are looking for an expected return from a spread between a basket pair or single pair! There is nothing controversial here. If you go to Wilmott or any of the other more quant forums they talk about it in the same way.
Here's a better article describing pairs, cointegration and the like:
http://www.yats.com/doc/cointegration-en.html
The OP mentioned he was using serial correlation and stationarity for his strategy. I assumed he was looking at some type of mean reversion pair trading or basket approach. If his strategy relies on stationarity and the like it sounds like a stat arb strategy.
I think everyone is just confusing semantics.
Listen, I tell the Original Poster its not arbitrage, and am disappointed because its not arbitrage. Then you tell me it actually is arbitrage.
Arbitrage is NO risk, low reward.
Anytime you take a directional bias, you have done something that has a risk. You have seen something that leads you to believe something will happen to the price in the future which hasn't happened yet. This guy has had losses on this strategy according to his own numbers. Therefore, it's not arbitrage. Therefore, it's a directional strategy. Therefore, it's another one of those strategies you can put in a book about - Mechanical Trading Systems, which have to do with which line crosses what and what candlestick is longer than what where the wick is this size. The guy is talking about an interpretation of price or something, I don't know, and it doesn't matter. There is a fairly big selection of trading strategies here at ET. But he doesn't even post the particulars of the strategy, just the stats. None of the ins and outs of a small retail trader trading at the same time two different accounts on two different exchanges, or even pairs trading, which you can do with one account (with 4x). It's useless. I am still disappointed. And now you with your tangent have generated a ratio of heat to light which has exceeded useful parameters as well! You do not deserve any cookies today.
Arbitrage is NO risk, low reward.
Anytime you take a directional bias, you have done something that has a risk. You have seen something that leads you to believe something will happen to the price in the future which hasn't happened yet. This guy has had losses on this strategy according to his own numbers. Therefore, it's not arbitrage. Therefore, it's a directional strategy. Therefore, it's another one of those strategies you can put in a book about - Mechanical Trading Systems, which have to do with which line crosses what and what candlestick is longer than what where the wick is this size. The guy is talking about an interpretation of price or something, I don't know, and it doesn't matter. There is a fairly big selection of trading strategies here at ET. But he doesn't even post the particulars of the strategy, just the stats. None of the ins and outs of a small retail trader trading at the same time two different accounts on two different exchanges, or even pairs trading, which you can do with one account (with 4x). It's useless. I am still disappointed. And now you with your tangent have generated a ratio of heat to light which has exceeded useful parameters as well! You do not deserve any cookies today.
Here ya go: http://www.mediafire.com/?r1heb1cxrq5qf57
As I tried to point out in my previous post: statistical arbitrage is referring to a specific form of trading, it is not outright (deterministic) arbitrage. If you want to live in your own delusional world of semantics, then be my guest. I just thought I would give it one last shot...
Btw, I have no interest in the OP and I'm simply speaking on a general basis.
LolQuote from savagemp5:
I see a list of Formulas.
I was expecting to see a list of Hedge funds or Prop that says - 33% returns since 1980 with Pair trading with co-integration/convergence.
Good luck with the debate and your trading
The introduction is good.
"Just like a a drunk man leaving a bar follows a random walk. His dog also follows a random walk on its own. The paths will diverge ... Then they go into a park where dogs are not allowed to be untied. Therefore the drunk man puts a strap on his dog and both enter into the park. Now, they share some common direction, their paths are co-integrated ... "