Our quantitative pair trading model signals to open Long
"KCHOL"/ Short "SAHOL"
This is the 6th time that our model signals a pair trade
between Koc Holding and Sabanci Holding over the past three years. The average
return of the previous trades has been 3.2% while the relevant investment
period was 6 days. Liquidity could not be an issue, since both Koc Holding and
Sabanci Holding have respective average daily trading volumes of US$13mn.
Brief summary of the model:
Pairs are identified based on fundamental relations ie
parent vs subsidiary, stocks in the same sectors such as banking or cement, or
indices and their constituents. Later on, these pairs are tested statistically
to see whether there is a high correlation between them. We analyse a total of
700 pairs on a daily basis. The model is structured around the mean reversion
rule and parameters such as correlation, normal curve value of the
differential, normal curve value of the ratio, moving averages, volatility and
other statistical characteristics of the pairs are monitored on a daily basis.
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