pair-trading

You automate pair trading by calculating the Z-score of the price ratio between two correlated instruments to identify extreme deviations. The strategy automatically executes trades expecting the price ratio to revert to its historical mean.

Pair trading is a strategy that profits from the mean reversion of the price ratio between two correlated assets. The Z-score measures how far the current ratio deviates from its historical mean, signaling when to enter or exit trades.

Yes, this pair trading strategy requires pandas and numpy for statistical analysis and data manipulation. These libraries handle the mathematical calculations needed to compute the price ratio Z-scores and process historical market data.

Yes, pair trading using Z-score mean reversion applies to correlated cryptocurrency pairs and stocks in the same industry. It targets any financial markets where traders aim to profit from mean reversion in price relationships.

You execute the pair trading skill by providing a configuration file named config.json and specifying the target instruments, such as VIC and VHM. The script then processes the price data to generate trading signals based on Z-score deviations.

Z-score pair trading assumes the price ratio between two instruments will always revert to the mean. If the underlying correlation breaks down permanently, the statistical spread will diverge indefinitely, causing sustained losses on the reversion trade.