I accept written a lot inwards the past times most the cointegration of ETF pairs, as well as how this status tin Pb to profitable pairs trading. However, equally every investment advisor could accept told you, past times cointegration is no guarantee of hereafter cointegration. Often, cointegration for a couplet breaks downwards for an extended period, possibly equally long equally a one-half a twelvemonth or more. Naturally, trading this couplet during this catamenia is a losing proposition, but abandoning such a couplet completely is also unsatisfactory, since cointegration oft mysteriously returns afterwards a while.
Influenza A virus subtype H5N1 instance inwards betoken is the ETF couplet GLD-GDX. When I starting fourth dimension tested it inwards 2006, it was an first-class candidate for couplet trading, as well as I non exclusively traded it inwards my personal portfolio, but nosotros traded it inwards our fund too. Unfortunately, it went haywire inwards 2008. We promptly abandoned it, exclusively to come across the strategy recovered sharply inwards 2007.
So the big interrogation is: how produce nosotros know whether the loss of cointegration is temporary, as well as how produce nosotros know when to resume trading a pair?
To response the starting fourth dimension question, it is oft necessary to acquire beyond the technicals, as well as delve into the fundamentals of pair. Take GLD-GDX equally the example. When I taught my pairs trading workshop inwards South Africa, several portfolio managers inwards attendance told me that in that location are two reasons why gilded location toll diverged from gilded miners' stock prices. Firstly, due to the sudden increase inwards fossil oil prices during the starting fourth dimension one-half of 2008, it costs the gilded miners a lot to a greater extent than inwards unloosen energy to extract the gilded from the ground, therefore the gilded miners' income lags behind the ascent inwards gilded prices. Secondly, many gilded miners hedge their exposure to fluctuating gilded prices amongst derivatives. Hence when gilded toll ascent beyond a for certain limit, the gilded miners cease to produce goodness from this rise. Recently, the Economist magazine published an article that essentially confirms this view. But farther confirmation tin hold upward gained past times introducing fossil oil (future) toll into the cointegration equation. If you lot produce that, as well as if you lot merchandise this triplet of GLD-GDX-USO, you lot volition discovery that it is profitable throughout the entire catamenia from 2006-2010. If you lot discovery trading a triplet also complicated, you lot tin at to the lowest degree backtest a trading filter such that you lot volition cease to merchandise GLD-GDX whenever USO goes beyond (above, as well as possibly below too) a for certain band. If you lot accept done all these backtests, you lot volition accept a invention inwards house to enjoin you lot when to resume trading this pair. But fifty-fifty if you lot haven't done this backtest, as well as you lot discovery that you lot ask to halt trading a couplet because of cumulating losses, you lot should at to the lowest degree maintain paper trading it to come across when it is turning around!
(By the way, if you lot mean value trading ETF pairs offers also depression returns due to the depression leverage allowed, reckon the unmarried stock futures on ETF's trading on the OneChicago exchange. Certainly the hereafter on GDX is available there, spell you lot powerfulness simply merchandise the futures GC as well as CL straight on CME. There is, of course, the commons caveat that applies to futures pairs trading: the switch from contango to backwardation as well as vice versa tin ruin many a pairs-trading strategy, fifty-fifty if the location prices rest cointegrating. But that's a even out for simply about other time.)
Tidak ada komentar:
Posting Komentar