Pair Trading Lab Helpdesk & Forum
Pair Trading => Models, Algorithms & Approaches => Topic started by: Michael Merrill on August 08, 2013, 02:24:32 pm
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I am trying to wrap my head around the ratio pairs model. When entering does the z-score have to be, say +/- 1.5, or are you using Bollinger bands around the Delta and if the Delta crosses 1.5 SD you enter? Same for exit logic.
Thanks
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Ratio model - we use Bollinger Bands around the price ratio (p1/p2) and we enter on 2 SD cross by default.
Actually mathematically it is the same as entering on Z-score = 2, because Z-score is just delta/sd (in this model).
We plan to put detailed documentation of both models to wiki, but we are really short of time at the moment.