Recent Posts1
Trading Results / Re: Anybody else noticed the change in market dynamics during the past month or so?
« Last post by Ray Zhung on February 19, 2020, 07:01:51 pm »Hi All, any updates on 2019 performance - how successful pair trading is now? Has it improved compared to 2018?
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