Research of Multi-Stock Pairs Trading Strategy Based on Co-integration
Abstract
Many institutional investors and hedge funds have utilized pairs trading as an important branch of market neutral approach. Traditional pairs trading, in general, is limited to two similar stocks and relies heavily on stock price information; however, there is a danger of non-convergence. The major goal of this study is to use standard pair trading to expand the trading technique from a limited two-stock portfolio to a multiple-stock portfolio and profit from differential pricing. As a result, we suggest a multi-stock pair trading strategy based on co-integration, in which long and short trades are executed when trading signals are triggered in order to generate excess returns.
Keywords
Full Text:
PDFReferences
Elliott RJ., Van Der Hoek, J., & Malcolm, W. P. (2005). Pairs trading. Quantitative Finance, 5(3), 271–276.
Vidyamurthy, G. (2011). Pairs trading: Quantitative methods and analysis. John Wiley & Sons, Inc.
Lei Y., & Chong Y. (2018). Multi-stock pairs trading method based on cointegration. Journal of Hubei University (Natural Science).
Weiming G. (2018). Research of Pair Trading Strategy Based on Multifactor Pricing Model in A-Share Market. Financial Theory Exploration.
De Moura CE, Pizzinga A, & Zubelli J. (2016). A pairs trading strategy based on linear state space models and the Kalman filter. Quantitative Finance, 16(10), 1559–1573.
DOI: http://dx.doi.org/10.18686/fm.v8i4.8649
Refbacks
- There are currently no refbacks.
