### Category Sweigert81290

The basic idea behind pairs trading is this: 1. Find a pair of stocks (or ETFs) whose prices tend to move together. 2. If the price movements are indeed highly correlated, then on most days the price per share of Stock A divided by the price per share of Stock B should come out to be about the same number, Pairs trading involves taking opposite but equal positions in two different underlying securities and are sometimes referred to as “intermarket spreads.” A key to the pairs approach is that it relies on a known, strong correlation (positive or negative) that exists between the two underlyings being considered for a spread. If the portfolio has only two stocks, it is known as pairs trading, a special form of statistical arbitrage. By combining two cointegrated stocks, we can construct a spread that is mean-reverting, even when these two stocks themselves are not.

## 2 Feb 2017 Abstract: Forex pairs trading strategy that implements cointegration is a sort of convergence Excel data (not logged) ===>FXCurrencies10

Yes, cointegration addresses a lot of the issues with correlation based trading. The concept is super easy, you basically just regress one variable onto another and select a scalar beta value for the one you regressed such that their linear combination forms a stationary process. Where S is (hopefully) a stationary process, The basic idea behind pairs trading is this: 1. Find a pair of stocks (or ETFs) whose prices tend to move together. 2. If the price movements are indeed highly correlated, then on most days the price per share of Stock A divided by the price per share of Stock B should come out to be about the same number, Pairs trading involves taking opposite but equal positions in two different underlying securities and are sometimes referred to as “intermarket spreads.” A key to the pairs approach is that it relies on a known, strong correlation (positive or negative) that exists between the two underlyings being considered for a spread. If the portfolio has only two stocks, it is known as pairs trading, a special form of statistical arbitrage. By combining two cointegrated stocks, we can construct a spread that is mean-reverting, even when these two stocks themselves are not.

### Step 1: Identify two co-related stocks as a pair Trading candidates. Step 2: Copy the Stock names in the designated cells in Excel Sheet. Step 3: Select from the drop-down (cell G1) that which stock you want to Buy when Pair trade signal Step 4: Enter the Divergence % and Investment per Stock.

Pairs Trading, Convergence Trading, Cointegration 2 Pairs Trading Model. 5. 2.1 Strategy . ˆ How to do a 'Regular' Dickey-Fuller Test Using Excel cached. 17 Jan 2017 The results under Cointegration output table shows that the price series is stationary and hence mean reverting. Dicky Fuller Test statistic and a

### Pairs trading involves taking opposite but equal positions in two different underlying securities and are sometimes referred to as “intermarket spreads.” A key to the pairs approach is that it relies on a known, strong correlation (positive or negative) that exists between the two underlyings being considered for a spread.

A simple Pairs trading strategy in Excel; Explanation of the model. Statistics play a crucial role