Correlation trading is a form of stat arb. Cointegation on basket is also part of stat arb. The basket can contents more than 2 assets. When basket size = 2, we say pair trading. Finally, stat arb is part of relative value arbitrage.

Traden4Alpha:This is an old post but I try...I would like to have your opinion about the Neural Net technology (MPL, RNN, RBF, Mixture Gaussian processes...). Does this technology really superior to classical statistic in practice as found in many academic papers. BR.

<t>Suppose you have an initial capital of $1M. Your L/S positions are :ENTRY LONG GM for $1M @ t . ENTRY SHORT FORD for $1.25M @ t.EXIT SHORT GM for $1.3M @ T.EXIT LONG FORD for $1.35M @ T . Gross return on GM = $300KGross return on FORD = -$150KTotal return = $150K%Return = $150K / $1M = 15.0% on t...

google for Carol Alexander papers... the answer is there...

Oup!

<t>Maybe my question is not clear enough...try again.Given the time window .Suppose there exists - we say that X is cointegrated. Each variable in X represents the log price of each asset. After applying the Engle-Grangle 2-Step approach or Johansen method, we get the vector of cointegration . Suppo...

<t>Hello-I don't understand how can we get dollar neutral when we work with the cointegration technique. Suppose is cointegrated where X = log Price. After apply Johansen method or 2-Step E-G approach, we have the first cointegrating vector . Then, we can write where u is the residual. Once the coef...