Pairs Trading in the Aluminum Market: A Cointegration Approach
This paper applies various ways of constructing statistical arbitrage trading rules for aluminum securities. The paper use daily observations of stocks, futures and two securities supposed to mirror the return of physical aluminum. We employ several sophisticated analysis of the
statistical properties of these securities and how they relate to each other. This paper applies
Engle-Granger and Johansen tests for cointegration to identify suitable securities for pairs
trading. The paper is useful for speculators and hedge fund managers who want to increase their
risk adjusted returns, as our analysis shows that trading sector neutral positions instead of
holding passive long positions in aluminum securities have significantly higher risk adjusted
returns. Our methodology is not unique for aluminum and can be transferred to other areas such
as oil or precious metals.
Place, publisher, year, edition, pages
Institutt for industriell økonomi og teknologiledelse , 2011. , 80 p.
ntnudaim:6375, MTIØT Industriell økonomi og teknologiledelse,
IdentifiersURN: urn:nbn:no:ntnu:diva-15237Local ID: ntnudaim:6375OAI: oai:DiVA.org:ntnu-15237DiVA: diva2:480284
Westgaard, Sjur, Førsteamanuensis