Pair trading strategy is market neutral, hence it is robust and stable.
Carefully selected pairs gives you profits for years...
See real portfolio performance since 01/01/2009 to 12/31/2012:
Initial capital: 12.495 USD
Portfolio: 10 stock pairs
Maximum positions: 5
Average net revenue: 130.2% p.a.
Which data provider / software provider do you use to run historical regression on the stock pair? Bloomberg Terminal?
Thanks in advance.
You need just EOD Close price & Volume for backtesting. You can download these data anywhere. Free sources: Google Finance, Yahoo; Paid service: EODData.com.
According to my investigation, all the sources are very similar. EOD Close is "basic" price, nothing to spoil... ;-)
Important:
- Historical data should NOT be "dividend adjusted". You need real (raw) historical data. In fact, you can use even "dividend adjusted" data, but your result will be affected.
- Historical data MUST be "split adjusted" - remove price gaps resulting from splits. Splits in unadjusted data generate fake signals / trades in backtest... Pair statistics are not useless then.
Stock Pair Trader can be connected to InterActiveBrokers data feed or IQfeed (unlimited history).
Once you fill your database with historical data, program automatically download updates from InteractiveBrokers.
Petr
I attach Excel spreadsheet with backtest results of 90.000+ stock pairs.
Backtest was performed using screening functionality of
Stock Pair Builder. (within 30 minutes... ;-) )
Pair parameters are default, no optimization.
See average values in table header - more than 65% pairs is profitable! From 10 randomly selected pairs 7 pairs is going to be profitable!
Model Ratio:
http://stockpairtrader.com/EN/download/Ratio.xlsx
Model Residual:
http://stockpairtrader.com/EN/download/Residual.xlsx
Model LogResidual:
http://stockpairtrader.com/EN/download/LogResidual.xlsx
Pair trading performance is based on statistical approach. There is HUGE trading edge in this strategy.