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Pairs trader with Hurst, ADF, and Half life tests feedback.

Attached is my current revision of a pairs trading algorithm that uses the following tests to test whether a pair is cointegrated:
-Augmented Dickey–Fuller (ADF) unit root test to see if the spread is stationary/mean reverting
-Hurst exponent to see if the spread is also stationary/mean reverting
-Half life to see whether the pair will revert back to the mean in a relatively short period of time

And uses a softmax function to create orders.

I was looking to see what you think. One thing I know I need to do is bring that beta down if I do want to be able to start entering competitions.

Clone Algorithm
43
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Backtest from to with initial capital
Total Returns
--
Alpha
--
Beta
--
Sharpe
--
Sortino
--
Max Drawdown
--
Benchmark Returns
--
Volatility
--
Returns 1 Month 3 Month 6 Month 12 Month
Alpha 1 Month 3 Month 6 Month 12 Month
Beta 1 Month 3 Month 6 Month 12 Month
Sharpe 1 Month 3 Month 6 Month 12 Month
Sortino 1 Month 3 Month 6 Month 12 Month
Volatility 1 Month 3 Month 6 Month 12 Month
Max Drawdown 1 Month 3 Month 6 Month 12 Month
# Backtest ID: 599e1bcb5fd37450fb46e128
There was a runtime error.
3 responses

this is the backtest the contest will see. 10M and 2 years

Feedback:
first you need to see if you can figure out how to make it trade right away instead of 6 months of warming up. then, Beta is the last thing you need to worry about, You should get your drawdown WAY down, like <5%, Leverage is out of control too, on the 2nd or 3rd day of trading you had -6M in cash, that will bust your algorithm right away, if you go over 1.0 leverage you will be disqualified. Next if you manage to get those down you should see how your sharpe is, 1.0 will not even be close.

Clone Algorithm
15
Loading...
Backtest from to with initial capital
Total Returns
--
Alpha
--
Beta
--
Sharpe
--
Sortino
--
Max Drawdown
--
Benchmark Returns
--
Volatility
--
Returns 1 Month 3 Month 6 Month 12 Month
Alpha 1 Month 3 Month 6 Month 12 Month
Beta 1 Month 3 Month 6 Month 12 Month
Sharpe 1 Month 3 Month 6 Month 12 Month
Sortino 1 Month 3 Month 6 Month 12 Month
Volatility 1 Month 3 Month 6 Month 12 Month
Max Drawdown 1 Month 3 Month 6 Month 12 Month
# Backtest ID: 599e28936c043a5115d4670a
There was a runtime error.

Hi Luke,
Cool thanks! I'll definitely look into bringing down those metrics. I still got to figure out exactly I'll do it, but if modifying my pairs tests doesn't work, I'll likely fall back on the account object for looking at my leverage for example and various other options.

To help identify pairs - I use this site, however its only for intra-day trading. They have hurst as well. https://raveanalytics.com/