Pairs Trading Workshop

This e-learning workshop introduces delegates to pairs trading, an important and effective market neutral strategy. The principle methods of research and implementation are discussed in detail and students will be given access to relevant software (MATLAB) to put theory into practice. Frequently Asked Questions.

Our e-learning workshop is designed to give you everything you need to know to get started with pairs trading and includes:

  • Online course module (3 months access)
  • Hard copy manual
  • MATLAB software (1 month) with MATLAB tutorial
  • Direct access to trainer for assistance

Frequently Asked Questions

Duration:

3 months access

Trainer:

Ernest Chan

Course Fee:

£895

Register

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

Stationarity of a time series

  • Concept of stationarity and why it is useful
  • Statistical test for stationarity
  • Testing for stationarity
  • Exercise: Backtesting a possible trading strategy
  • Exercise: Testing EURGBP for stationarity

Cointegration of two time series

  • Concept of cointegration and why it is useful
  • Statistical test for cointegration
  • Exercise: Testing for cointegration
  • Exercise: Building and backtesting a simple Bollinger Band pairs trading strategy on IGE-EWC

Calculating the half-life of mean-reversion

  • How long is the expected holding period for a mean-reversion trade?
  • Why is computing half-life better than computing average holding period?
  • Using the Ornstein-Uhlenbeck formula to determine half-life
  • Exercise: Computing the half-life of mean-reversion for IGE-EWC

The pitfalls of cointegration analysis

  • Is cointegration necessary for pairs trading?
  • Where 2 instruments are not cointegrated over L/T, but mean-revert under certain situations
  • Mean reversion and seasonal effects
  • Mean-reversion and trading horizon

“Parameterless” pairs trading strategies

  • A way to “pyramid” or “layer” your pairs positions
  • What about stop losses?
  • Pairs trading stocks, ETFs, and futures
  • Which is the best market?
  • The pitfalls of each market and some ways to avoid them

Beyond trading pairs

  • Trading an ETF against a subset of its component stocks
  • Exercise: Constructing a trading model of XLE against its components
  • Statistical arbitrage: picking two subsets of stocks from an index & trading them vs 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

APPENDIX MODULE: MATLAB Tutorial

  • Why MATLAB and what are the alternatives?
  • Overview of its capabilities as a research, backtesting, and automated trading platform
  • Exercises: building some utilities for trading and plotting simple graphs
  • Using toolboxes
  • Freeware: Spatial-econometrics.com

What is the timeline for the course?

You can start the course anytime you wish and will gain access to the online course materials within one business day of registration. Your online access will last for 3 months, plus you will also receive a hard copy of the manual within a few days of registration.

How long should it take me to complete the course?

We provide three months’ access to the online material (one month to MATLAB) to give students a chance to take things at their own pace, but we expect most people to take no longer than a week to complete the course.

What kind of MATLAB assistance am I provided with?

There is a MATLAB tutorial included in the workshop. If you have used MATLAB before, you should find it quite easy to complete the exercises, which do not require extensive programming. No prior knowledge of MATLAB is in fact necessary, although some general experience in programming using other simple languages would be useful.

When will my MATLAB licence begin?

You are advised to go through the online material first, then let us know when you are ready to start the course in conjuntion with the MATLAB exercises, at which point we will request that your MATLAB licence begin. Please bear in mind it may take a couple of days to set you up with MATLAB.

Is the course still useful if I have no intention of using MATLAB?

Yes, the main aim of the course is to communicate the principles of Pairs Trading. Furthermore, MATLAB programming code can be adapted fairly easily into ‘R’, an open-source alternative.

What does the online course material comprise?

The online course material is made up of two modules. The first module is the main course and consists of slides with the trainer’s narration, recorded demos, and exercises with answers. The second module consists of a tutorial covering the essentials of MATLAB programming.

Will I be able to ask questions as I go along?

The trainer is happy to help you out in case you need assistance. Questions can be asked directly by email or through the trainer’s blog. However, the number and depth of the questions should be kept within reason and within the scope of the training course.