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Pairs trading strategy on bond futures

  • #21
  • Nov 3, 2014 2:59am Nov 3, 2014 2:59am
Here is the Signal from the equation 1:

Attached Image


Here is the signal calculated with the CFD futures contract with Activtrades:

Attached Image (click to enlarge)
Click to Enlarge Name: Screenshot1.png Size: 40 KB

The PnL is (151.22-151.07)*1000 + (128.11-128.12)*2000 = 150 - 20 = + 130€ so far!

The position should be closed tonight before 10 p.m. Paris time. It could be closed now but in the backtests, the positions were closed at closed prices.
  • #22
  • Nov 3, 2014 3:40am Nov 3, 2014 3:40am
what does it mean return of the period?
  • #23
  • Nov 3, 2014 3:48am Nov 3, 2014 3:48am
Quoting magico31
what does it mean return of the period?
I wrote on the first post:
Quote
It is possible to backtest more periods from the equation 1, but if I chose the return of 1 period and
the standard deviation from the last 20 periods the reason is 1 for the mispricing on a daily basis
and the 20 for a averaged volatility of the return on the last trading month numbered in days.

So 1 period for the returns and 20 periods for the standard deviation of the returns from the equation 1
  • #24
  • Nov 3, 2014 4:05am Nov 3, 2014 4:05am
ok, but I don't understand what are R a,t and R b,t

R a,t = price A at the t period?
  • #25
  • Nov 3, 2014 5:46am Nov 3, 2014 5:46am
Quoting magico31
ok, but I don't understand what are R a,t and R b,t R a,t = price A at the t period?
R(a,t) = return of A at the t period, for example let calculate the eurobund return of 31 october 2014 of 1 period.
Here are the values of eurobund CFD futures contract:
Attached Image


The valus are in the right of the picture. SO R(eurobund, 31/10/2014) = (151.05-150.87)/150.87 = 151.05/150.87 - 1 = 0.001193

If the period is 2, we have to take the value of 29 october 2014. Is it clear?
  • #26
  • Nov 3, 2014 5:53am Nov 3, 2014 5:53am
ok arb thanks, but I'm sorry for my bed english, I must study it , very hard!!!
  • #27
  • Nov 3, 2014 9:28am Nov 3, 2014 9:28am
Here is a new pairs trading strategy on CAC 40/EUROSTOXX 50 on H1 data (from LMAX exchange):

https://www.dropbox.com/s/sabw5fc77k..._23H.xlsx?dl=0

I don't made the basic statistics, but it can be done very quickly in excel. The raw results are the trades taken and the PnL curve.
  • #28
  • Nov 3, 2014 11:37am Nov 3, 2014 11:37am
Not too bad TheArbitrage

Equity of setup number 13.
period of return=10
threshold=1.

Question :

I don't understand below ?!

>Value point
CAC 40 1
EUROSTOXX 50 1.3

In your backtest you setup fees ? Slippage ?
Attached Image (click to enlarge)
Click to Enlarge Name: Equity_EUSTOOXX_CAC40.png Size: 14 KB
  • #29
  • Nov 3, 2014 11:53am Nov 3, 2014 11:53am
Quoting surfeur
Not too bad TheArbitrage Equity of setup number 13. period of return=10 threshold=1. Question : I don't understand below ?! >Value point CAC 40 1 EUROSTOXX 50 1.3 In your backtest you setup fees ? Slippage ? {image}
Yes, spread of 1 for both assets. Period of return 10 and standard deviation of 20 for the returns of 10 periods.

No slippage, with a spread of 2 should do the trick.

Here you have the true PnL curve.
Attached Image (click to enlarge)
Click to Enlarge Name: Screenshot1.png Size: 7 KB
  • #30
  • Nov 3, 2014 12:14pm Nov 3, 2014 12:14pm
Quoting surfeur
Not too bad TheArbitrage Equity of setup number 13. period of return=10 threshold=1. Question : I don't understand below ?! >Value point CAC 40 1 EUROSTOXX 50 1.3 In your backtest you setup fees ? Slippage ? {image}
In my humble opinion it has to be the raw ratio between the two futures that gives the clue on the amount of lots in EUrostoxx and Cac so to have them balanced...Istance 4 lots of EStoxx and 3 lots Cac ( 4/3 = 1.33)

I hope I was correct....Hey TheArbitrage......very nice and interesting thread ...keep on the good job.
  • #31
  • Nov 3, 2014 12:58pm Nov 3, 2014 12:58pm
OLS regression say 1 lot Eurostoxx vs 0.73 lots CAC40.
  • #32
  • Nov 4, 2014 12:48am Nov 4, 2014 12:48am
Quoting surfeur
OLS regression say 1 lot Eurostoxx vs 0.73 lots CAC40.
1.3 for EUROSTOXX 50 and 1 CAC 40 = money neutral. Each leg of the trade have the same amount of money.

Attached Image (click to enlarge)
Click to Enlarge Name: Screenshot1.png Size: 39 KB


Here is the trade on euro-bund/Bobl which is closed. So the PnL is:

The PnL is (150.95-151.07)*1000 + (128.11-128.02)*2000 = -120 + 180 = + 60€.

PnL of the strategy so far = +60 euros
  • #33
  • Nov 5, 2014 6:52am Nov 5, 2014 6:52am
Quoting MAM.Trader
same here {quote}
basket trading = statistical arbitrage with more than two assets (in general a basket of pairs are more stable (cointegrated) in time than two currency pairs).

We could name basket trading a form of statistical arbitrage (is worked well in stocks, futures and currencies). Besides "statistical arbitrage" = Absolutely NOT risk-free arbitrage!

http://www.forexfactory.com/showthread.php?t=446654

Here is a scholar article which talks about portofolio of currencies with cointegration.
Attached File(s)
File Type: pdf ArtCDJLAS_0410 Copy.pdf   1.1 MB | 1,436 downloads
  • #34
  • Nov 5, 2014 8:01am Nov 5, 2014 8:01am
Quoting TheArbitrage
{quote} basket trading = statistical arbitrage with more than two assets (in general a basket of pairs are more stable (cointegrated) in time than two currency pairs). We could name basket trading a form of statistical arbitrage (is worked well in stocks, futures and currencies). Besides "statistical arbitrage" = Absolutely NOT risk-free arbitrage! http://www.forexfactory.com/showthread.php?t=446654 Here is a scholar article which talks about portofolio of currencies with cointegration. {image}
hi TheArbitrage, do you have any more literature on the principle of what you are trading, as I would like to adopt it to FX pairs with a known correlation (presuming that's where this approach works best). Have had a quick google on the net and found pretty much what you have descirbed, just wondered if you had more info to talk through the theory in a bit more detail, tend to find that the information is somewhat limited? Cheers!
  • #35
  • Nov 6, 2014 1:21am Nov 6, 2014 1:21am
Google, amazon and youtube are your friends. You didn't search hard enough.

Besides at this end of this article, you have references. So get to work and do your homework!
  • #36
  • Nov 19, 2014 2:13am Nov 19, 2014 2:13am
Attached Image


I sold the spread last night (2€/point short on the eurobund december 14 and 4€/point long on the BOBL).

You can follow the results from my Trade Explorer.
  • #37
  • Nov 23, 2014 8:57am Nov 23, 2014 8:57am
Here is a thread about quantitative and algorithmic trading.


http://www.forexfactory.com/showthread.php?t=433728
  • #38
  • Last Post: Dec 10, 2014 2:30am Dec 10, 2014 2:30am
I have decided to change the parameters to 5 and 20 instead of 1 and 20. I am doing that in order to give more time for the pairs trade more slack, and so more profit potential.

The Trade Explorer doesn't work because I am not with 8% return this month but with -4.5% all-time return. Something is wrong with their calculations, but worth case scenario you just have to look at the track record and make the maths.

So far in this out-of-sample testing or forward testing the results seems the same as in the backtests. Only the time could tell if that pairs trading strategy is interesting.
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