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Thank you for the pointers.
ADF was exactly what I was looking for as learning exercise.
I'm aware that most of the pair-trade alpha is quickly arbitarged away
and goes in a full circle in which bad performances drive away the
less sofisticacted and increase the opportunity which in turn attracts
more participants which again decrease the profit potential.
With your pointers I will start my long journey of learning the
anotomy and theory of internal combustion engine before driving a car.
best regards,
dxd
--- In amibroker@xxxxxxxxxxxxxxx, "vlanschot" <vlanschot@xxx> wrote:
>
> It's been a while since I created that, but yes, this can quite
> easily be achieved in AB. However, since there's nothing more
> important than to learn along the way, and find you own solutions,
> I'll give you only a few pointers:
>
> 1) You need to create a few OLS-regression functions. One simple
> example is:
>
> function OLSXYb2(x,y,Period)
> // y = dependent var
> {
> global RSq;
>
> SumX=Sum(x,Period);
> SumY=Sum(y,Period);
> CombSum=Sum(x*y,Period);
> SumSqX=Sum(x^2,period);
> SumXSq=Sum(x,period)^2;
>
>
> b2=(period*CombSum-SumX*SumY)/(period*SumSqX-SumXSq);
> //b2=OLS-beta
> Rsq=Correlation(x,y,Period)^2;
>
> return b2;
> }
>
> Unfortunately, this only applies to 1 independent variable, and
> you'll need to find out yourself how to expand it to 2 independent
> variables, i.e. to regress y over x and z.
>
> 2) You then need to calculate and further manipulate the OLS error
> terms. One approach is to use the Augmented Dickey Fuller (ADF) stat.
>
> Again, a hint:
>
> ADFResErr = OLSXY(P1, P2, LBPer);
> n = 0;
> ADFOLSErr[0]=0;
> while (n<LBPer)
> {
> ADFOLSErr = Ref(P2,-n)-SelectedValue(OLSb1) -
> SelectedValue(OLSb2)*Ref(P1,-n);
> n = n+1;
> }
> etmin1 = Ref(ADFOLSErr,-1);
> etmin2 = Ref(ADFOLSErr,-2);
> ResChange = ADFOLSErr - etmin1;
> Lag1ResCh = Ref(ResChange,-1);
> Lag2ResCh = Ref(ResChange,-2);
> Cointgr = OLSXYZ(ResChange,
> etmin1,Lag1ResCh,LBPer);
> tau = tvalueb3;
> . . . .
>
> FWIW, too many investors are now looking at pair-trading via coint,
> i.e. it has largely been arbitraged away. Most succesful hedge funds
> use way more advanced strategies.
>
> PS
>
> --- In amibroker@xxxxxxxxxxxxxxx, "john_dxd_smith"
> <john_dxd_smith@> wrote:
> >
> >
> > Hi,
> >
> > I understand cointegration, not correlation, is used to rank stocks
> to
> > find "pair trade" candidates.
> > I read a lot of papers I found googling but they are all too
> technical
> > and way over my head.
> >
> > I'm only interested in a very basic/primitive textbook-case approach
> > among many variants actually used by hedge funds.
> >
> > How do I go about creating cointegration matrix ?
> > Is it doable with AmiBroker ?
> > If not, are there any statistical/math softwares for non-quants to
> > create the matrix ?
> >
> > Thank you in advance.
> >
> > best regards,
> > dxd
> >
>
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