This is a pairs trading strategy based on the copula method. Please look into tutorial page for details. In order to compare the performance of copula pairs trading technique, I also implemented with cointegration method for comparison. Leave a comment if anyone has questions or suggestion about my implementation.
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Pairs Trading - Copula Method vs Cointegration
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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
I checked the copula code from the tutorial (one with 427 trades, 353% Net Profit). If you look at the trade log, it seems that it opens a long position in XLK on 2010-03-03 and the short QQQ gets rejected because of insufficient capital. Another pair trade is opened on 2010-03-26 in opposite direction and half the size. Then the two ~2k shares long positions in both instruments are held for 8+ years, producing most of the total net profit. Am I reading this right?
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Hi Petras,
Your reading of the trading log is correct. Please let me know if you have any further questions.
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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
I do have a question. Do you plan fixing this bug? Because as of now the tutorial page shows a completely bogus and unrealistic strategy and results. When I fixed the bug by reducing trade sizes the resulting equity curve was basically a random walk.
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Hi Petras,Â
First of all, thank you for your feedback, but we didn't find any problem with our system.Â
Regarding the strategy itself, the trading logic is correct. The invalid trade order happened on 2010-03-03 you observed is due to insufficient remaining capital. I've added an order size constraint in the code to avoid this. Please check out the attached backtest and especially the part of placing orders under OnData() method.Â
Additionally, I've refactored the code to convert it into a universe selection model. If you want to discuss further, feel free to contact me here.Â
Best regards,
Xin
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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
0
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
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