Intraday Pair Trading/Stat Arb

total_keops · Nov 13, 2011

What software do you have to scan/chart/trade pairs?

Shanb · Nov 13, 2011

Quote from total_keops:

What software do you have to scan/chart/trade pairs?

At this point I don't. This is part of the reason why alot of the testing hasn't been done. I have a colleague who has done some of this work on MATLAB, so I may have to consult with him.

I use Lightspeed and TOS for my current trading and it doesn't require much except for some simple arithmetic in excel. I know that this could be done through excel...would probably take a couple days to put something together. I am finally opening a Tradestation account, so hopefully somebody has put together some third party add on to put something into a neat package. If not, I will just have to use TS for data and link it to Excel

Shanb · Nov 13, 2011

Quote from Bob111:

most of ET trying to make a living scalping SP\CL fututers..your stuff is wayy too complicated for them..

Do you currently employ this type of approach? If yes, how has it fared?

baggerlord · Nov 13, 2011

Imo you might want to master your other approach before you go down this road. You are just now having good results and if you refined it and scaled things up a bit you will do pretty well. Just my 2 cents.

Shanb · Nov 13, 2011

Quote from baggerlord:

Imo you might want to master your other approach before you go down this road. You are just now having good results and if you refined it and scaled things up a bit you will do pretty well. Just my 2 cents.

Wel i've been working on this for some time now...just a little side project.

I also just can't help myself lol. I live and breathe this stuff...I will have to keep your advice in mind

Shanb · Nov 13, 2011

Quote from baggerlord:

Imo you might want to master your other approach before you go down this road. You are just now having good results and if you refined it and scaled things up a bit you will do pretty well. Just my 2 cents.

You have a very good point tho, I tend to want to move too far ahead and too fast at times. Looks like this testing will have to be done off hours and not interfere with the other stuff. Thanks!

Trader13 · Nov 13, 2011

Quote from Shanb:

I am looking at an intraday approach. What I am working on, is a form of sector arbitrage. Taking industries within sector ETF's, finding the most optimal stocks, finding optimal hedge ratio's to trade against the ETF. This is assuming that co-integration exists between stocks and their component etf's of course. In theory, by finding the optimal weightings of component stocks we should have created a synthetic asset to trade against the ETF. So when a sector or group of stocks get skewed, I can trade my synthetic asset against the broader ETF.

Your background suggests you already have an understanding of pair trading, stat arb, and pure arb strategies. So I won't review those approaches and how they relate to what you described.

Is there any aspect of your idea that is new or innovative? What you presented seems to be no more than a standard reference strategy for ETF arb. Did I miss some nuance in your idea?

Shanb · Nov 13, 2011

Quote from Trader13:

Your background suggests you already have an understanding of pair trading, stat arb, and pure arb strategies. So I won't review those approaches and how they relate to what you described.

Is there any aspect of your idea that is new or innovative? What you presented seems to be no more than a standard reference strategy for ETF arb. Did I miss some nuance in your idea?

I just haven't seen alot of discussion about this on an intraday basis. Factor models used intraday will be alot different than on a longer tf given the difference in market participants that operate on that tf.

Also some nuance may lie in what factors to consider when creating the basket to trade against the ETF. I am noticing that the different Sector ETF's have some different allocation of holdings. While one sector ETF may work well with using the varying industires. Something like the XLE may work better by differentiating according to market cap and industry

Bob111 · Nov 13, 2011

Quote from Shanb:

Do you currently employ this type of approach? If yes, how has it fared?

nah..i have no balls for big ass positions and directional intraday plays....leave it for hot shots from ET..i prefer to be market neutral..and whatever comes with it..you know..limited risk\limited reward s**t..

just curious -if pair trading goes quite well-why you asking for whatever? pairs intraday, and i'm pretty sure if i said-yeah..directional trading is damn good for me-likely you would ask for details,aren't you?

Shanb · Nov 13, 2011

Quote from Bob111:

nah..i have no balls for big ass positions and directional intraday plays....leave it for hot shots from ET..i prefer to be market neutral..and whatever comes with it..you know..limited risk\limited reward s**t..

just curious -if pair trading goes quite well-why you asking for whatever? pairs intraday, and i'm pretty sure if i said-yeah..directional trading is damn good for me-likely you would ask for details,aren't you?

hahah obviously I dont have it all figured out! I wouldn't be posting on ET if I did lol.

I don't have a quantitative background, so going through this stuff has been slow and grinding. Now I've got the basics down and need to gather everything for testing. What do you use for intraday testing. None of the basic software out there even deals with intraday data!