Blog

Explore the research behind our trading, plus some just-for-fun stuff....

Posted on Apr 02, 2020 by Robot James
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Options are non-linear financial products that allow you to do useful things that you can't easily do with other financial instruments. Let me give a specific illustration of options being useful... The chart below shows the monthly cumulative % performance of our RW systematic trading portfolio since we started trading it in October 2018. The orange line shows our  performance....

Posted on Mar 31, 2020 by Kris Longmore
1 Comment.
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To say we're living through extraordinary times would be an understatement. We saw the best part of 40% wiped off stock indexes in a matter of weeks, unprecedented co-ordinated central bank intervention on a global scale, and an unfolding health crisis that for many has already turned into a tragedy. As an investor or trader, what do you do? You...

Posted on Mar 12, 2020 by Kris Longmore
1 Comment.
739 Views

The vector autoregression (VAR) framework is common in econometrics for modelling correlated variables with bi-directional relationships and feedback loops. If you google "vector autoregression" you'll find all sorts of academic papers related to modelling the effects of monetary and fiscal policy on various aspects of the economy. This is only of passing interest to traders. However, if we consider that...

Posted on Mar 05, 2020 by Kris Longmore
7 comments.
666 Views

Way back in November 2007, literally weeks after SPX put in its pre-GFC all-time high, Friedman, Hastie and Tibshirani published their Graphical Lasso algorithm for estimation of the sparse inverse covariance matrix. Are you suggesting that Friedman and his titans of statistical learning somehow caused the GFC by publishing their Graphical Lasso algorithm? Not at all. I'm just setting you...

Posted on Oct 16, 2019 by Kris Longmore
2 comments.
821 Views

In the first three posts of this mini-series on pairs trading with Zorro and R, we: Implemented a Kalman filter in R Implemented a simple pairs trading algorithm in Zorro Connected Zorro and R and exchanged data between the two platforms In this fourth and final post, we're going to put it all together and develop a pairs trading script...

Posted on Oct 03, 2019 by Kris Longmore
2 comments.
536 Views

In the last two posts, we implemented a Kalman filter in R for calculating a dynamic hedge ratio, and presented a Zorro script for backtesting and trading price-based spreads using a static hedge ratio. The goal is to get the best of both worlds and use our dynamic hedge ratio within the Zorro script. Rather than implement the Kalman filter...

Posted on Sep 25, 2019 by Kris Longmore
3 comments.
1,092 Views

In our previous post, we looked into implementing a Kalman filter in R for calculating the hedge ratio in a pairs trading strategy. You know, light reading... We saw that while R makes it easy to implement a relatively advanced algorithm like the Kalman filter, there are drawbacks to using it as a backtesting tool. Setting up anything more advanced...

Posted on Sep 19, 2019 by Kris Longmore
13 comments.
1,863 Views

This Kalman Filter Example post is the first in a series where we deploy the Kalman Filter in pairs trading. Be sure to follow our progress in Part 2: Pairs Trading in Zorro, and Part 3: Putting It All Together. Anyone who's tried pairs trading will tell you that real financial series don't exhibit truly stable, cointegrating relationships. If they...

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