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Pairs Trading: Quantitative Methods and Analysis

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  • PDF Name: Pairs Trading
  • Author: Ganapathy Vidyamurthy
  • Book’s Language: English
  • Published Year: 2004
  • Pages: 223
  • File Size: 3.62 MB
  • Downloads Type: Free PDF Download Books
  • PDF File Name: Pairs-Trading-Quantitative-Methods-and-Analysis-PDFRat-.pdf
  • Read PDF Online: Read Pairs Trading Book PDF Online
  • Category of the Book: Business & Career
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Summary of Pairs Trading by Ganapathy Vidyamurthy

“Pairs Trading: Quantitative Methods and Analysis” Highlights

1. Introduction to Pairs Trading:

  •  Pairs trading is a quantitative trading strategy that identifies assets with historically associated price movements and exploits any departures from their usual relationship.
  •  The approach profits on relative value disparities between the two equities rather than market direction.

2. Statistical Measures and Correlation Analysis:

  • The document examines pairs trading statistical measures like mean, standard deviation, and correlation coefficient.
  •  Correlation analysis measures the linear connection between price series to find trading pairings.

3. Cointegration and Stationarity:

  • Cointegration ensures that two non-stationary time series have a long-term relationship.
  • Pairs trading relies on cointegrated pairs, where the spread between the prices of the two securities reverts to a mean value.
  • Stationarity, the statistical properties of a time series remaining constant over time, is essential for constructing a reliable pairs trading strategy.

4. Building a Pairs Trading Model:

  • The document covers data selection, pair identification, statistical analysis, model development, and strategy implementation,
  • Emphasizing the need for thorough backtesting and robust risk management to ensure the trading strategy’s effectiveness and profitability.

5. Trading approaches and Risk Management:

  • The document discusses pairs trading approaches such spread trading, beta-neutral trading, and dollar-neutral trading.
  • The document discusses risk management in pairs trading, including position sizing, stop-loss orders, and portfolio diversification.

6. Advanced subjects:

  • The document covers advanced pairs trading subjects like market microstructure, liquidity, transaction costs, and high-frequency trading methods.
  • It discusses adapting the pairs trading method to different market conditions and its problems and potential.

7. Case Studies and Examples:

  • The document provides real-world examples of pairs trading in various financial markets.
  • Each case study’s trade setups, entry and exit points, and performance evaluation are explained for traders.

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