This e-learning workshop explores the theory and practical implementation of mean reversion strategies.
Our e-learning workshop is designed to give you everything you need to know to get started and includes:
- Online course module (6 hours)
- MATLAB software (1 month) with MATLAB tutorial (3 hours) and sample data
- Direct access to the trainer for assistance
- Course duration: 6 hours
- Access period: 3 months
- Trainer: Ernie Chan
- Course fee: £895 + VAT
Stationarity and cointegration of time series
- Stationarity and mean-reversion: the practical benefits
- Statistical test for stationarity: ADF
- Exercise: Using MATLAB and spatial-econometrics toolbox to find out if AUDCAD is stationary
- Execise: Adapt Bollinger band strategy to trade AUDCAD
- Cointegration and its practical benefits
- Cointegration vs correlation
- Statistical test for cointegration: CADF
- Exercise: Find out if GLD-GDX is cointegrating using CADF
- Order-dependence of CADF
- Statistical test for cointegration: Johansen
- Exercise: Find out if GLD-GDX is cointegrating using Johansen
Tutorial to MATLAB
- Quick survey of syntax
- Exercises: building some utilities useful for trading and plotting simple graphs
- Using toolboxes
Mean-reversion trading of pairs and triplets
- Finding hedge ratio through linear regression (LR)
- Exercise: Find hedge ratio for GLD-GDX using LR
- Order-dependence of hedge ratio based on LR
- Finding hedge ratio through Johansen test
- Exercise: Backtest Bollinger band strategy for GLD-GDX
- Case study: The breakdown of cointegration of GLD-GDX, the economic reasons and the remedy
- Exercise: Backtest Bollinger band strategy for GLD-GDX-USO
- A general guide to surviving the breakdown of cointegration
Half-life of mean-reversion
- Practical importance of half-life
- The Ornstein-Uhlenbeck formula
- Exercise: Computing the half-life of the GLD-GDX spread
- Paramterless-trading revisited: using half-life to eliminate lookback parameter
Risk management of mean-reversion strategies
- The pros and cons of using stop loss for mean-reversion strategies
- The use of implicit stop losses
What are the best markets for pair trading strategies?
- Pros and cons of pair trading ETFs, stocks, currencies, futures, and other markets
- Why sometimes economically-related pairs of futures do not cointegrate
- Exercise: Test for cointegration of WTI vs Brent crude oil futures
- Exercise: Test for stationarity of “crack spread”
- Trading an ETF against a basket of its component stocks
- Two ways of constructing a basket: linear regression and constrained optimization
- Exercise: Backtest a trading model of XLE against its components
- Issues with index arbitrage
- Exercise: A long-short portfolio strategy of stocks in the S&P 500
- Relevance of strategy to 2007 quant funds meltdown
- The importance of universe selection: market capitalization, liquidity, and transactions costs
- Strategy refinement: how small changes can make big differences in performance
Frequently Asked Questions
WHAT IS THE TIMELINE FOR THE COURSE?
This course is pre-recorded and available indefinitely for viewing on Adobe Connect.
HOW LONG SHOULD IT TAKE ME TO COMPLETE THE COURSE?
We provide indefinite access to the online material to give students a chance to take things at their own pace, but we expect most people to take no longer than a week to complete the course.
WHAT KIND OF MATLAB ASSISTANCE AM I PROVIDED WITH?
There is a MATLAB tutorial included in the workshop. If you have used MATLAB before, you should find it quite easy to complete the exercises, which do not require extensive programming. No prior knowledge of MATLAB is in fact necessary, although some general experience in programming using other simple languages would be useful.
WHEN WILL MY MATLAB LICENCE BEGIN?
You are advised to go through the online material first, then let us know when you are ready to start the course in conjunction with the MATLAB exercises, at which point we will request that your MATLAB licence begin. Please bear in mind it may take a couple of days to set you up with MATLAB.
IS THE COURSE STILL USEFUL IF I HAVE NO INTENTION OF USING MATLAB?
Yes, the main aim of the course is to communicate the principles of mean reversion strategies. Furthermore, MATLAB programming code can be adapted fairly easily into ‘R’, an open-source alternative.
WHAT DOES THE ONLINE COURSE MATERIAL COMPRISE?
The online course material is made up of two modules. The first module is the main course and consists of slides with the trainer’s narration. The second module consists of a tutorial covering the essentials of MATLAB programming.
WILL I BE ABLE TO ASK QUESTIONS AS I GO ALONG?
Unlimited Q&A will be conducted on the course Slack channel.