Study from academic researchers and industry practitioners has demonstrated that pairs trading strategy has the potential to generate consistent and stable risk adjusted returns in all market conditions. Our own research has also illustrated that pairs trading strategy can be implemented on daily base as well as intraday base. This blog will show the real out-of-sample pairs trades between NASDAQ 100 Index and Dow Jones Industry AVG Index, and the implied market timing.
The US market has been oversold: Long NDX and short INDU, implying market will go up in the near future
The previous signal made 1.12% in the short and 0.6% in pairs. YTD ETF pairs trading is 9.2%, long- or short-only NDX is 17.4%, and future pairs trading is close to 40%.
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