Kalman filter and pair trading

Published at May 1, 2020 ·  4 min read

Pair trading is a type of cointegration approach to statistical arbitrage trading strategy in which usually a pair of stocks are tcraded in a market-neutral strategy, i.e. it doesn’t matter whether the market is trending upwards or downwards, the two open positions for each stock hedge against each other. The key challenges in pairs trading are to: Choose a pair which will give you good statistical arbitrage opportunities over time Choose the entry/exit points One of the challenges with the pair trading is that cointegration relationships are seldom static....