November 2019
Beginner
394 pages
10h 31m
English
Content preview from Learn Algorithmic Trading
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Lead-lag in StatArb
Another important consideration is that this strategy implicitly expects the portfolio to lead and the trading instrument is lagging in terms of reaction by market participants. When this is not true, for example, when the trading instrument we are trying to trade is actually the one leading price moves across the portfolio, then this strategy doesn't perform well, because instead of the trading instrument price catching up to the portfolio, now the portfolio prices catch up to the trading instrument. This is the concept of lead-lag in StatArb; to be profitable, we need to find trading instruments that are mostly lagging and build a portfolio of instruments that are mostly leading.
A lot of the time, the way this manifests ...
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