Backtest Of Pairs Trading Strategy Based On Bank Shares

Pairs trading is a kind of statistical arbitrage strategy,through long-term practice, people has been found that the stock prices of listed companies in the same industry tend to move up and down together,and arbitrage opportunities exits when the prices spread appear to deviate unconventionally.Selling short the relative strong stock at the same time buying the relative weak stock, waiting until the price spread come to the equilibrium positions can make a profit.Therefore, this strategy does not depend on a single stock price movements, but the relative price changes between the securities. The novel of pair trading is that the investment targets the the relative difference of two kinds of stocks rather than the absolute prices.Pair trading strategy has a lot of specific stock selection method.This paper use the most widely adopted method of correlation coefficient’s filter and co-integration test, and then carried out within and outside the samples period.Through comparation and analysis,advantages and disadvantages of several kinds of method can be received.This strategy is a market neutral strategy, refers that this strategy can take positions through both sides,flush out most of the systematic risk and make the beta close to zero. The pair trading has proved that it can help people get considerable income.Therefore,once short sell is allowed in China stock market, the future survival and development of fund companies will turn to the multi-channel profit pattern. Institutional investors will also enter the era of hedge funds, which is an important step for Chinese stock market.