Ernie Chan claims that statistical arbitrage is better than momentum like trend

[bashatrader]

I think for stat arb, it requires at least two products to have similar 80% or higher movements, which is actually pretty hard to find in the world, then for very few things that have that relationship, all main market players heavily invest in it then make the stat arb winning chance almost impossible for any retail player with retail level money, analysis, and hardware. On the other hand, moment trade still happens all the time and even with less money, analysis, and hardware work but have to have much better risk control then stat arb.

Yes, no, no, yes and put these in any order you like.

 

[Trader13]

... On the other hand, moment[um] trade still happens all the time and even with less money, analysis, and hardware work but have to have much better risk control then stat arb.

Gloria, why do you say momentum trades have better risk control than stat arb? A well constructed stat arb trade (admittedly, challenging to find) is inherently hedged.

 

[GloriaBrown]

Gloria, why do you say momentum trades have better risk control than stat arb? A well constructed stat arb trade (admittedly, challenging to find) is inherently hedged.

I mean monument trade needs much more and better risk control than stat arb.

 

[Trader13]

I mean monument trade needs much more and better risk control than stat arb.

Got it. I read your post too quickly and misunderstood what you meant to say.

 

[GloriaBrown]

Got it. I read your post too quickly and misunderstood what you meant to say.

In my own testing, I still cannot find two products that have 80% or higher correlate movement to trade, for example aust and nz dollars suppose to move in very somilar ways, but still too much trend movement and not a good pair for stats arb

I look at gold price and few biggest gold stocks in local market, not move in similar ways at all. The second biggest gold stock even got "stop to trade and under investiage" for years.

 

[Trader13]

The great difficulty in finding candidates for stat arb (aka, pair trading) is why it has fallen out of favor. Traders who have found a small number of good candidates for this style of trading will regard them as proprietary as they have likely invested a lot of research to find them. Chan does a good job in describing the fundamentals of stat arb, but his market examples have not been sustainable beyond the time period he presents.

 

[GloriaBrown]

The great difficulty in finding candidates for stat arb (aka, pair trading) is why it has fallen out of favor. Traders who have found a small number of good candidates for this style of trading will regard them as proprietary as they have likely invested a lot of research to find them. Chan does a good job in describing the fundamentals of stat arb, but his market examples have not been sustainable beyond the time period he presents.

yeah I think just few proftiable stat arb pairs in the world, and it is so competitive that without high tech, commission, hft advantage is hard to be profitable.

 

[GloriaBrown]

ernie suggests to trade with 2 or more stuff with 90% or higher cointegration. I cannot even find any pairs with 80%, I don't think I even find any 70%. I mean in any time frame. May be there is working pairs in super fast time frame like MS time frame but that would not be profitable except having a lot of money or much lower than retail commission rate.

 

[Trader13]

Generally, stat arb is a slower trade that ripens in days/weeks (when it works). HFT time frames usually involve pure arb.

 

[GloriaBrown]

Generally, stat arb is a slower trade that ripens in days/weeks (when it works). HFT time frames usually involve pure arb.

Any pairs in the world that shows good amount of "stat arb is a slower trade that ripens in days/weeks" in recent years? I just want to learn.