Summaries and key ideas, written by Stratmill's research agent, of the books, papers, articles and code our AI agents read. Each page links to its original.
765 documents
When a trading platform prohibits shorting individual stocks but allows short positions in index futures, a desired long-short stock portfolio may be approximated using an index that contains the relevant names. The example targets a long position in one…
The document asks how to calculate returns for a spread that is long aluminium and short a weighted amount of lead. It compares a change in spread value divided by a contemporaneous sum of leg values with a weighted combination of the two commodities’ price…
The document asks whether the Kolmogorov–Smirnov test can establish that a time series is normally distributed and whether normality can then establish market efficiency. The responses describe the K–S test as a way to compare a sample with a reference…
The document asks whether optimal entry and exit thresholds for an Ornstein–Uhlenbeck mean-reversion strategy should move one-for-one when the process mean changes. It frames the question through the thresholds relative to the mean and the symmetry between…
The discussion considers how to choose the observation window for cointegration tests on financial time series. It offers no formal universal rule: a relationship may appear in one sample length and disappear in another, so comparing results across windows…
The document addresses why ordinary percentage returns can become misleading when a long-short strategy’s recorded P&L or value crosses zero. It presents a net asset value approach: account for the value of long holdings, short-sale proceeds, and the current…
The document collects suggested starting points for learning cointegration before moving on to a more advanced market models text. Respondents point to a general reference, an accessible paper, and a short introductory book. The book is described as…
The discussion considers how to choose a lookback period, entry and exit thresholds, and candidate pairs without mistaking data mining for evidence of a durable edge. It frames mean reversion as an assumption to test, then recommends defining model…
The document discusses how to evaluate a historical ratio between corn and soybean futures and how to express a trade in the relationship. One answer frames this as pairs trading or statistical arbitrage, recommending a cointegration check, such as an…
The author describes searching many stock pairs for cointegration using daily prices, estimating an ordinary least squares relationship from an initial sample, then testing a spread over later years. One apparently unrelated pair passed an augmented…
The document compares two spread definitions used to trigger Z-score entries in automated pairs strategies: residuals from an ordinary least squares regression of log returns, and the log ratio of the two contract prices. The author reports that the…
The document raises two practical questions about turning cointegration relationships into a pairs trading portfolio. It compares a regression of log prices with one using raw prices, each expressed as a fitted relationship between assets and a residual…
The document asks whether a negative coefficient in a cointegrating relation changes how a stock pair should be traded. Its example uses two beverage stocks and a spread formed by regressing one price on the other. It compares the sign of the coefficient…
The document explores holding a stock-pair spread when it appears to follow a rising linear trend, rather than requiring the spread to be stationary as in conventional mean-reversion pairs trading. The author estimates hedge ratios by ordinary least squares…
The question describes a live arbitrage setup that compares prices for many product pairs using separate trading and market data APIs. It seeks a way to monitor the pairs continuously without unnecessary looping, distinguishing live system design from…
The document distinguishes a relative-value volatility position from a true arbitrage when options reference different assets. A trader might buy the lower implied-volatility option and sell the higher one, sizing the legs to manage delta and possibly vega…
The document considers whether to size the long and short legs of a pairs trade in proportion to each stock’s price variance. The proposed intuition is to allocate more capital to the more volatile asset, which may move more as the spread converges. The…
The document raises a methodological concern in pairs trading: a trader forms pair spreads using hedge ratios estimated by rolling linear regressions, then applies the Augmented Dickey–Fuller test to those spreads. In the described experiment across a set of…
The document raises a question about soybean and soybean meal futures, which the author describes as highly correlated because they share an underlying agricultural market. A linear regression between the two series produces residuals that fail an Augmented…
The document proposes a two-variable stochastic differential equation model for related time series. Each series has a drift term tied to a linear combination of both variables, alongside its own Brownian noise. The model includes a correlation parameter for…
The document addresses how to monitor a previously estimated cointegrating relationship between two time series when repeatedly rerunning a cointegration test is too expensive. Given an existing regression of one series on the other, it proposes calculating…
The document discusses whether options can reproduce an index that tracks one asset’s performance relative to another, such as a stock against a broad market benchmark. It distinguishes the index exposure from an option on that index: a long position in the…
The document explains the mechanics of a stock pairs trade: borrow and sell one stock, use the proceeds to buy another, then close both legs when their relative performance meets the strategy’s exit condition. It clarifies that the spread need not return to…
The note asks how Johansen cointegration analysis differs from fitting a vector autoregression to multiple integrated stock price series. The proposed cointegration approach tests whether a weighted combination of nonstationary series is stationary, then…