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Statistical Arbitrage

– Stationarity and cointegration of time series

  • Stationarity and mean-reversion: the practical benefits.
  • Statistical test for stationarity and practical exercise
  • Cointegration and its practical benefits.
  • Cointegration vs correlation.
  • Statistical test for cointegration and practical exercize

– Mean-reversion trading of pairs and triplets

  • Finding hedge ratio through linear regression (LR).
  • Order-dependence of hedge ratio based on LR.
  • Finding hedge ratio through Johansen test.
  • Case study: The breakdown of cointegration of GLD-GDX, the economic reasons and the remedy.

– Half-life of mean-reversion

  • Practical importance of half-life.
  • The Ornstein-Uhlenbeck formula.

– Risk management of mean-reversion strategies

– Index arbitrage

  • Trading an ETF against a basket of its component stocks.
  • Two ways of constructing a basket: linear regression and constrained optimization.

– Long-short portfolio

  • Long-short portfolio strategy of stocks in the S&P 500.

Posted February 06, 2015 in: by ammin

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