Sample strategy #6 – Pairs Trading with Country ETFs

   An academic paper from Thomakos, Wang and Schizas offers one such option. They use ETFs, which provide a much smaller universe and have one great advantage compared to stocks – the ETF is a portfolio of stocks and is therefore more resilient to unexpected news related to single stock (which often breaks a promising convergence in stock's pairs). Pairs Trading with Country ETFs is therefore an easy and promising version of a pairs trading strategy.

   Performance and risk characteristics of this strategy also look very promising – the backtest indicates more then 20% p.a. performance with 10% volatility which means an attractive Sharpe ratio of 1.66.

   The source paper can be found on the following web page: http://www.fma.org/Denver/Papers/pairetf.pdf

   Our strategy overview with extracted trading rules and hypothetical performance chart with probability bands can be accessed here: http://quantpedia.com/Screener/Details/55

Share onRefer to a friend

Quantpedia is The Encyclopedia of Quantitative Trading Strategies

We’ve already analysed tens of thousands of financial research papers and identified more than 400 attractive trading systems together with hundreds of related academic papers.

Browse Strategies

or find out more

Blog Sponsor

Subscribe for Newsletter

Be first to know, when we publish new content


logo
The Encyclopedia of Quantitative Trading Strategies

Log in