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 S&P 500 Index has dropped more than 2% since the short signal on July 16. However, the spread between INDU and NDX is still near -3%. It will be a long way for the spread to turn positive so that the market can be stable.
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