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On Pairs Trading: A Comparison between Cointegration and Correlation as Selection-criteria
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Statistics.
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Statistics.
2014 (English)Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

In this paper we show that pairs of stocks which have a true long run equilibrium (cointegration) yield a higher return than pairs of stocks that relies on a more spurious relationship (correlation) when applying Pairs Trading for a trading period from 31/12-09 to 25/6-14. We get an annual return for the cointegration portfolio of 4,15%, with a Sharpe-ratio of 0,87. For the correlated portfolio we get 2,08% and 0,45, respectively. The Sharpe-ratio for a buy-and-hold market index during the same period was 1,08.

Place, publisher, year, edition, pages
2014. , 20 p.
Keyword [en]
Pairs trading, Cointegration, Correlation, Simulation Study, NASDAQ100
Keyword [sv]
Parhandel, Kointegration, Korrelation, Simuleringsstudie, NASDAQ100
National Category
Probability Theory and Statistics
Identifiers
URN: urn:nbn:se:uu:diva-242346OAI: oai:DiVA.org:uu-242346DiVA: diva2:783284
Subject / course
Statistics
Supervisors
Examiners
Available from: 2015-02-09 Created: 2015-01-25 Last updated: 2015-02-09Bibliographically approved

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CiteExportLink to record
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Citation style
  • apa
  • ieee
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  • Other style
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Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
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  • Other locale
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Output format
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