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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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