| Looking back at the A-share market that has been affected by the epidemic for three years,the Shanghai Composite Index has experienced significant fluctuations.With the economic downturn,it is more difficult to obtain stable returns,and prudent investment strategies have received attention.Pair trading strategy is a market neutral investment strategy that uses the price difference between two or more highly correlated stocks to trade,thereby achieving insensitivity to the overall market trend.The core idea of a pair trading strategy is to use the volatility of the price difference between highly correlated stocks to make a buying or selling decision when the price difference deviates from its historical average.When the price difference returns to its historical average,closing positions gains.Pair trading is characterized by risk neutrality and can achieve stable returns during periods of stock price volatility.It is a neutral trading strategy that can be applied to bull and bear markets.This is particularly important in today’s capital markets,where the world economy is closely connected and the cost is multiple risk exposures.In 2010,the margin trading system officially entered the market operation stage in the A-share market,changing the situation that A-shares can only be "unilaterally traded" since their birth,which laid the foundation for the implementation of the pair trading strategy of selling stocks.Pair trading strategies are divided into a formation period and a trading period.In the formation period,given that different pair trading methods vary,different pair trading methods have different characteristics when selecting stocks,and have different characteristics in different periods of the A-share market.A single stock pair method cannot well measure the long-term returns of pair trading strategies in A-shares.In order to better measure the return of pair transactions,this article will use the minimum distance method,co-integration method,Hurst index method,and HP method as methods for selecting stock pairs.Due to the large fluctuations in the A-share market,the realization of securities lending transactions cannot be guaranteed when the stock market goes down.Considering the short selling restrictions in China’s stock market,measures are taken to solve the problem,and two different sets of pair trading strategies are designed,namely,a trading strategy based on margin trading and a trading strategy based on early buying.Considering the trends and characteristics of A-shares in different periods,this article divides the entire trading period from 2011 to2022 into bear market stage,big fluctuation stage,and epidemic stage.Taking CSI300 stocks as the research object,this paper analyzes the profitability of pair trading in China using four pair methods.A detailed statistical analysis of pair trading profits and failures in the Chinese stock market is conducted,and the average trading time of each team of stocks is further displayed for statistics.The FF-5 factor model is used to analyze the source of stock returns and the impact of fluctuations in market factors on the returns generated by pair exchanges.This paper conducts a comprehensive comparative analysis of the risks and returns of China’s A-share market through the four different pairing selection methods mentioned above,in order to test the profitability of pairing trading strategies. |
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