Duration: 2 Days (9am to 5pm)
Trainer: Ernest Chan
London Course Fee: £1790 + VAT - Register
online
Hong Kong Course Fee: £1890 - Register
online
New York Course Fee: £1790 - Register
online
| 26 & 27 Oct '10 | New York, USA | Millenium Hilton Hotel >> |
| 25 & 26 Nov '10 | London, UK | Apex City of London Hotel >> |
| 18 & 19 Jan '11 | Hong Kong | Sheraton Hong Kong Hotel and Towers >> |
Please visit our Course Diary to see dates and locations for all of our UK and overseas courses.
This two day workshop introduces delegates to pairs trading and related strategies, with particular reference to research and implementation using MATLAB.
Overview
- Stationarity, cointegration, and mean reversion
- Pair trading in stocks, ETF's, futures, and currencies
- Beyond trading pairs: trading stock baskets against index and other statistical arbitrage strategies
Tutorial to MATLAB
- Overview of capabilities as research, backtesting, and automated trading platform
- Exercises: building some utilities useful for trading and plotting simple graphs
- Using toolboxes: a) Datafeed toolbox; b) Statistics toolbox; c) Financial, financial derivatives, fixed-income, econometrics, optimization, neural network, wavelet toolboxes
- Freeware: Spatial-econometrics.com
Basic concepts in pair trading
Stationarity of a time series
a) Concept of stationarity, and why is it useful
b) Statistical test for stationarity
c) Exercise: Using MATLAB and spatial-econometrics toolbox to find out if CADAUD is stationary
d) Exercise: if CADAUD is stationary, backtest a possible trading strategy
e) Exercise: Find out if EURGBP is stationary
Cointegration of 2 time series
a) Concept of cointegration, and why is it useful
b) Statistical test for cointegration
c) Exercise: Find out if GLD-GDX is cointegrating
d) Exercise: Find out if IGE-EWC is cointegrating
e) Exercise: Building and backtesting a simple Bollinger-band pair trading strategy on IGE-EWC
Calculating the half-life for mean-reversion
a) How long is the expected holding period for a mean-reversion trade?
b) Why is computing half-life better than computing average holding period?
c) Using Ornstein-Uhlenbeck formula to determine half-life
d) Exercise: Compute the half-life of mean-reversion for IGE-EWC
Practical aspects of pair trading
- The pitfall(s) of cointegration analysis
- Is cointegration necessary for pair trading?: a) There are cases where 2 instruments are not cointegrated over long time-scale, but nevertheless mean-revert under certain situations; b) Mean reversion may depend on time of day, or day of week, or day of month -- seasonal effects; c) Mean-reversion may depend on trading horizon
- "Parameterless" pair trading strategies: a way to "pyramid" or "layer" your pairs positions
- What about stop loss?
- Pair trading stocks, ETFs, and futures: a) Which is the best market?; b) The pitfalls of each market and some ways to avoid them
- High-frequency pair-trading: a) Divergence between backtest and reality; b) Exercise: backtesting a high frequency calendar spread strategy; c) Exercise: building a automated trading program for calendar spread strategy;
Beyond trading pairs
- Trading an ETF against a subset of its component stocks
- Exercise: Construct a trading model of XLE against its components
- Statistical arbitrage: picking two subsets of stocks out of an index and trading them against each other
- Exercise: Constructing a market neutral statistical arbitrage strategy
Conclusion
- Mean-reversion vs. momentum strategies: why focus on the former?
- Cointegration and mean-reversion: related, but neither necessary nor sufficient
- Different ways to construct mean-reverting portfolios
- Software for download, books and articles for references
Introduction
to Technical Analysis
For those new to TA
UK: £795 + VAT
Non UK: £895
Advanced Technical Analysis
For experienced market players
UK: £1490 + VAT
Non UK: £1690
Short Term Trading Workshop
Our practical workshop for short term traders
UK: £1590 + VAT
Technical Analysis for the Equity Portfolio Manager
Our TA course for fund managers
UK: £795 + VAT