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Help with Kalman Filter based pairs trading

Hello!

Im getting errors in my code when i try to put a kalman filter into my forex data. Can someone look at the code and tell me why my spreads/graphs look odd and why its not working? Thank you!

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Hi Hugh, you use the hourly resolution for the forex price series. You don't need to convert the data frame index with data[syl].index = data[syl].index.date. Otherwise, the index would be the same for hourly data on the same day as they have the same date. You should keep the hour index without doing the date conversion "data[syl].index = data[syl].index.date.".

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Thank you! I reran the code using a different set of time series and it looks like there's cointegration. However, the Kalman filter seems to go outside of the upper and lower spreads of the mean as you can see. How would I go about trading this? Thank you.

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The cointegration relationship between two series might change over time also the parameter in the Kalman Filter method affects the results. These are different methods to find the pairs trading candidates. Their correlations are not deterministic. When or where to trade or which pair to choose are all based on your trading logic. Doing ADF test in Cointegration approach is a commonly used method. You can pick pairs which pass all those tests or choose one criterion that convince you most. 

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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.


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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.


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