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A step further of pair trading

Hi guys,

As we know that pair trading is a confirmed profitable stratgy. Typical pair trading is to find two cointegration stocks and trading stratgy can then be set base on the linear combination of these two stock EOD time serials.
Now the question is, is it possible to indetify multiple stocks(more than two) to form an arbitrage strategy, buy A when stock A is relatively under estimated and at the same time sell B when stock B is relatively over estimated ?

1 response

I think that in any pairs trading strategy with a diverse set of pairs, the pairs should be continually tested for cointegration. The added benefit of having a diverse set of cointegrated pairs in a strategy is that when one set has fallen out, you have other sets to allocate to.