Simple Mean Reversion 570 replies
Pairs Trading: Reversion to the Mean 19 replies
this is derived from a system using PCA and eigenvalues. Please consider the factor of -1 concerning the spread when comparing the graphs.
DislikedYour condition: Sum(Coef^2) = 1. Example, 0.6335^2 + 0.6773^2 + 0.3740^2 = 1
Recycle2 (Method4) condition: Sum(|Coef|) = 1. It is better.Ignored
thanks for the encouraging responses. Please find some comments/answers below.
1. On coefficient normalization:
The link mentioned by getch is IMHO dealing with a different matter. There they talk about weighted geometric means with weights having a econometric meaning. Our coeffs are basically a linear combination of time series that are coint'ed. You can look at it as projection of several time series through a vector. In order to not scale the time series, the vector length should have a length of 1. This corresponds to Sum(Coef^2) =...Ignored
I am trading this live. However I have to admit that the recent massive drop of the USDCAD has caused some 4-sigma-events, which brought some losses. Can anybody actively trading these instruments confirm this ?
DislikedWhat is your profit target for the positions, 0,5 std, 1 std, mean level ?
Is it really "sell when it goes up" or is it "sell when spread>0" ?Ignored
Dislikedyou do a pure grid in relation to 0, not an assessment of trend?Ignored