Pair Trading
prediction of further movement of any financial instrument - a thankless task. No methods or indicators are not able to on a regular basis to indicate the correct direction of trade. The market changes all the time, so one stop strategy work, others (not necessarily better) become effective. Obtained by cycling and traders, leaving a huge physical and emotional load of market fluctuations, often do not receive the calculated return. Alternatives to "predict" is, and plenty of them. A wide range of traded financial assets, access to various markets allow you to apply the strategy, in general, neutral to the market. One such approach is the pair trading or, as it is called, the statistical arbitrage.
main idea of the strategy is the assumption that the market is correlated with each other financial instruments or their group. A classic example of such pairs are stocks of companies of one sector or basket of stocks relative to the index itself equity indices. Sooner or later the market situation arises when the correlation is weaker. One of the assets (in the jargon of traders "leg") by virtue of any factor starts to deviate much stronger than the other, if not start trading tools differently. As a result, the difference (or spread) between price increases. Focusing on historical patterns and statistical calculations, we can assume that raskorrelyatsiya - a temporary phenomenon and the spread will come to normal mean values, ie shrink. Therefore, that "leg", which has grown abnormally, we sell, the second purchase, conversely, if the downward movement, buying heavily sagging asset, another sell out. It turns out, is one tool we make a profit, and another loss. Total to the general market movement strategy is neutral, we are only interested in the width of spread of the selected pair. Accordingly, once the spread starts to narrow, strategy will begin to generate income. We just close the two "legs" opposite transaction and fix the profit.
Thus, one of the main task is to find the pair trading well correlated with each instrument. It is important that they are liquid and available for discovery, as long position (buying) and short (sell). However, the higher the correlation, so usually already spread and harder to earn. In the Russian market the range of such tools small, it is primarily blue chips, futures for them, as well as commodity and commodity futures and futures on the RTS and MICEX. In addition to correlation, it is necessary balance tools in the pair, otherwise the dynamics of a single "leg" of the pair will prevail over another and the financial results will be distorted. For example, if we got together to trade action against the futures on the same rally, you need to handle that amount of shares, which corresponds to the specifications of the futures contract (usually futures per 100 shares). Thus, we chose a couple and begin trading in the direction of narrowing spreads, but spreads, as luck would have continued to expand. This situation, incidentally, the most likely, since we are trading against the trend of a more agile instrument. What do you do?
published two - either wait, or to average a losing position opening up new contracts. Waiting in itself - it is losing money, so to make a pair trading, have averaged. We can not do without a plan and pre-conceived factors and averaging steps in accordance with disposable tools. Must rely to sustain wide spreads at least 1.5 times greater than the maximum possible value based on historical data. Of course, such restrictions can not guarantee that, with some point spread will narrow. It is important to remember that the average losing position, albeit with minimal probability can lead to complete loss of money, ie averaging only increases the losses.
therefore advocates the strategy of trading the pair are trying to diversify, selling more than one pair, and the portfolio such pairs. Another "trick" the pair of traders is trading "with both hands, simultaneously on multiple accounts. The idea is that the position of we did not 0, and +1 on one account and -1 in another. Further, at some point profitable position is closed, and losing is averaged. Finally, last but not least aspect is the time-frame. Intra-day spread may be one, and the daily and weekly - many times more. This point should be considered when calculating the period averaging. Perhaps the best solution would be fixing a losing position if financial resources are inadequate.
Generally, the idea of pair trading not new and is very popular, especially in western areas. There are hedge funds that specialize exclusively in doubles trading. In Russia, this niche have not yet mastered. Perhaps this is due to the small number of assets available for short sales. In recent years, there are many software products, allows you to trade in pairs in the automatic mode, and hence the popularity of the pair trading will grow in the Russian market.
0 comments:
Post a Comment