The cointegrated-based pair trading crucially depends on two key parameters: the length of the formation period and the divergence signal (or opening trigger), which are generally arbitrarily or statistically determined in the literature. In this article, we perform a sensitivity analysis ofthe pairs trading profitability to its parametrization, employing the daily closing prices of the S&P 500 constituent stocks. We found that that not only the measures of performance (i.e. average excess returns, Sharpe ratios and percentage of positive excess returns), but also strategy characteristics and trades features (i.e. average trades’ duration and number of trades) are highly sensitive to the choice of the parameters.

Brunetti, M. e R., De Luca. "Sensitivity of profitability in cointegration-based pairs trading" Working paper, CEFIN WORKING PAPERS, Dipartimento di Economia Marco Biagi – Università di Modena e Reggio Emilia, 2022.

Sensitivity of profitability in cointegration-based pairs trading

Brunetti, M.;
2022-01-01

Abstract

The cointegrated-based pair trading crucially depends on two key parameters: the length of the formation period and the divergence signal (or opening trigger), which are generally arbitrarily or statistically determined in the literature. In this article, we perform a sensitivity analysis ofthe pairs trading profitability to its parametrization, employing the daily closing prices of the S&P 500 constituent stocks. We found that that not only the measures of performance (i.e. average excess returns, Sharpe ratios and percentage of positive excess returns), but also strategy characteristics and trades features (i.e. average trades’ duration and number of trades) are highly sensitive to the choice of the parameters.
Novembre
Brunetti, M.; De Luca, R.
Brunetti, M. e R., De Luca. "Sensitivity of profitability in cointegration-based pairs trading" Working paper, CEFIN WORKING PAPERS, Dipartimento di Economia Marco Biagi – Università di Modena e Reggio Emilia, 2022.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11380/1292045
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