Hi, guys.
My second algorithm with pairs tradings strategy. The idea is simple, find two correlated stocks. Long the running slower one, and short the running faster one. Make the profit from the gap.
This test is based on COCA and PEPSI, and result shows the return is not extremely high, but very stable.
The benchmark is SP500 (^GSPC). Check https://github.com/quantopian/zipline/blob/master/zipline/data/benchmarks.py
Those are pretty great shares. Pair trading is a hot topic on Quantopian these days!
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I mean to post my results in this discussion, but misplaced it. I changed this to run the GLD and GDX algorithms, and got okay results. How does the algorithm determine the determine the slower and faster running securities? I am new to python.
Thanks.
Hi, Josh
I don't think GLD and GDX is a good pair, their correlation is only 0.5189 based on the 2006 to 2013 historical data.
And for (PEP, KO) (XOM, CVX) are both above 0.9.
And What I did is using formular
gap = stock1- ratio*stock2
ratio = average(stock1/stock2) for historical data
when gap > 0, then stock1 running faster, and stock2 running slower.
Morten,
I don't see where in this source code says benchmark symbol is ^GSPC. I thought the benchmark is the S&P500 fund, SPY, not S&P500 itself, is that right?
-Huapu
This time, I tried the OLS fit but not average the ratio. It should be more sophisticated method. But as you can see the result is no big difference, or even worse
I modified Xin's pair trading strategy on KO and PEP. I used Bolinger band as the criteria for trading. The results are comparable. The main problem is that KO and PEP doesn't cointegrate and thus they are not very good pair trading candidates. The price ratio, beta, changes a lot with time and it is very difficult to follow the change. Pair trading would be more profitable with a better pair candidate.
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian.
In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.
