Pair Trading

Linear regression

Examining linearity between two stocks – linear regression and interpreting results.
Read: Relationship between a pair of stocks


How do you conclude that a pair of stocks move together?
Read: Bank Nifty vs. HDFC Bank and ICICI Bank

Finding Pairs

Correlation, spreads and co-integration.
Read: Finding Pairs to Trade

Hedge ratio

Hedge ratios, spreads and significance.
Read: The Bank Nifty – ICICI Bank Pair

A pair trading strategy

A simple trading strategy: buy the spread if it is one standard deviation below the average and sell the spread if its is one standard deviation above the average.
Read: Backtesting a Pair Trading Strategy

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