Pair Trading > Trading Results

Anybody else noticed the change in market dynamics during the past month or so?

<< < (2/2)

Ray Zhung:

--- Quote from: Stanislav on January 26, 2020, 11:46:39 am ---Hi All, any updates on 2019 performance - how successful pair trading is now? Has it improved compared to 2018?

--- End quote ---

From my personal experience, you can gauge the performance of pair trading (besides checking your own portfolio) by monitoring the other side of the trade, which is momentum. When pair trading is not working well, that means mean reversion in general has weakened, and momentum strategies are gaining more steam.

My favorite ETF to look at for such purpose is the AGFiQ US Market Neutral Momentum Fund, ticker MOM. The fund basically takes the exact opposite trades of pair traders' in a dollar neutral fashion. If you check its 2019 performance, there is a mini surge started in May and culminated in early September, then crashed during the month of September. My portfolio had a very good five and half month (up about 7%, Sharpe ratio 4+), then came crashing down during the following month, giving back all the profits. It's 2 years in a row such things happened and I doubt it will be the last. Unfortunately MOM is very thinly traded, so hedging your portfolio with it is not possible. Until there's a viable alternative to hedge your during those momentum surges I just don't see pair trading as a reliable strategy to generate consistent profits.

Ray

Marek:
Hello.  I just joined the forum.  I figured I would comment here since I had some experience with pairs in the past.  I discovered this strategy back in 2008-2009 meltdown.   It was incredible during highly volatile times.  It may be a good reference to go review that time.  I stopped using it but am coming back to it because of the volatility.  I just remember ranges were much wider and as long as vix stayed high, things worked really well.  Something worth looking into.

Hung-Wah Cheung:
My first post. From my personal experience H1 2018 was phenominal and then I experienced a slow grinding decay in H2 2018. 2019 was pretty much a mixed bag. So far in 2020 that trend has continued with some pairs still exhibiting tradeable forecasts whilsts others have bombed.

My extra two cents to not to look for the pairs that everyone else thinks of (KO/PEP) as an example and go for pairs that have capacity constraints. Also look at Japan, though the min lot size makes effective hedging challenging.

Navigation

[0] Message Index

[*] Previous page