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Updated Pairs Trading Lecture: Now With Less Wind Resistance

Here is an updated version of the pairs trading lecture. In addition I am working on an advanced version that deals with some of the more sophisticated math behind the concepts.

All lectures can be found here:

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4 responses

Great Post Thanks.

Do you think their is still alpha to be captured at the minute level even with abunch of stat arb firms trading on tick data?

An interesting concept would be to see if news seniment scores from Accern are correlated with stock prices breaking cointegration or causing cointegrated stocks to deviate then wind up reverting

Great post, very informative.

@Miles I think there is definitely still alpha to be captured. It's from a different source, the types of signals that are strong at tick level are different from the signals that are strong at minute or week level. Time series can behave totally differently depending on sampling frequency, so it's almost like dealing in different worlds.

The news sentiment idea is also very interesting and worth some study. Another argument might be that news is precisely what drives the deviation from the mean spread in a pair of stocks. The idea is that the same macro-economic factors drive both in the same directions, but the small ups and downs that cause temporary higher and lower spread may be partially driven by the news events. So you could argue that news sentiment may both drive cointegration and break it depending on circumstances.

@Jason Thanks, check out the rest of the lecture series for more.