Pair Trading Strategy Journal

Just a general newbie question to the PairTradeFinder users.

Most of the stat arb papers use "cointegration" as the test for mean-reversion to find potential pairs. However, PTF uses only simple linear correlation to scan. What's your experience with mean-reversion behavior from pairs found by linear correlation? According to academic theory, cointegration should be used to find mean-reverting pairs, but I am curious to what people have to say with practical experiences.

Thanks
 
Quote from ezbentley:

Just a general newbie question to the PairTradeFinder users.

Most of the stat arb papers use "cointegration" as the test for mean-reversion to find potential pairs. However, PTF uses only simple linear correlation to scan. What's your experience with mean-reversion behavior from pairs found by linear correlation? According to academic theory, cointegration should be used to find mean-reverting pairs, but I am curious to what people have to say with practical experiences.

Thanks
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read through the thread - it's been mentioned several times already. bottom line is that most the traders here, rightly or wrongly, do not use cointegration. most prefer to "keep it simple"
 
I don't know how to program a spreadsheet macro, but if I did, I would make one that would link to my broker (IB) and close a pair when the ratio hit my target. Unattended. Even better, when the ratio hits the target, trailing stops would be issued to allow profitable positions to run.

Can someone write a script for this? I wish IB would allow this order type.

Walt B
 
Quote from waltbx:

I don't know how to program a spreadsheet macro, but if I did, I would make one that would link to my broker (IB) and close a pair when the ratio hit my target. Unattended. Even better, when the ratio hits the target, trailing stops would be issued to allow profitable positions to run.

Can someone write a script for this? I wish IB would allow this order type.

Walt B
More...
I think that the IB combo order will do most of what you want. Although I am not sure about the trailing stops angle.

Don
 
Quote from waltbx:

I don't know how to program a spreadsheet macro, but if I did, I would make one that would link to my broker (IB) and close a pair when the ratio hit my target. Unattended. Even better, when the ratio hits the target, trailing stops would be issued to allow profitable positions to run.

Can someone write a script for this? I wish IB would allow this order type.

Walt B
More...
¸
Walt, for the take profit you dont need to write code or any macro. Some simple formulas in Excel could do it. if you use the IB Excel API sample.
For the trail it's another story because you need to keep in memory where is the trail. For that you need some visual basic code with a macro. But that is not a big project.
Also, Excel is not that stable so realiability could be an "issue". The issue is that it could disconect from the IB TWS and therefore miss the data to make the trade.
And, youu need the TWS openned all day on the computer, therefore, you can't access the account from somewhere else.
 
Quote from Don87109:

I think that the IB combo order will do most of what you want. Although I am not sure about the trailing stops angle.

Don
More...

I've read here before that the IB Combo Order will work with stocks, and I've tried it w/o success. I've also read the TWS helps and I can't enter stocks into a Combo Order. Options only. If you can make it work, would you give me a brief tutorial? Can it be set to activate an order when a ratio hits a mark?

Walt B
 
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