Tag Archives: stat arb

Intro to algo trading and Stat Arb strategies

Intro to algo trading and Stat Arb strategies

 

A new service set of videos from Quant Insti

 

https://quantra.quantinsti.com/#/community

 

 

 

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Not complicated, Stat Arb easy way to earn

Not complicated, Stat Arb easy way to earn

What do you think I am implementing with this pair trading strategy? But now it is being implemented for high speed

http://www.nasdaq.com/article/dont-be-fooled-by-the-fancy-name-statistical-arbitrage-is-a-simple-way-to-profit-cm254669

Thanks to someone on my Facebook for this

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NOTE I now post my TRADING ALERTS into my personal FACEBOOK ACCOUNT and TWITTER. Don't worry as I don't post stupid cat videos or what I eat!

Slow stat arb definite future of HFT shops?

Slow stat arb definite future of HFT shops?

An oxymoron I know by that statement but Manoj Nerang’s new HFT firm shall focus on this. He was the guy who founded Tradewerx

From a few weeks ago

http://quantlabs.net/blog/2016/03/slow-stat-arbitrage-strategy-next-frontier-for-hft-shops/

My Phase 1 in my “Indie Algo Trading Business in Python” course series focuses exactly on this!

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Matlab quant finance trading resources with various source code examples for statistical artbitrage aka stat arb

First, Good Friday to all! I did two videos on this popular model forecasting including statistical arbitrage:

elite vs premium

Matlab quant finance trading resources with source code for statistical artbitrage aka stat arb – See more

If you want to understand the next generation direction I plan to take, you need to read this dialogue:

 

What is is this Matlab typesafe interface vs Builder NE for DotNet CSharp vs Simulink C++ or FPGA HDL quant trading deployment – See more
Another stat arb demo:
Matlab downloadable source code demos for statistical arbitrage with genetic algorithms – See more

 

As you know, i just brought back my popular Premium Membership for those who want affordable ways to learn how I do things. So what is the difference betweeen that and my Elite Membership;

 

What is the difference between a premium quant and a elite quant with source code and trading strategies – See more

 

Join here to lean more about my Premium Membership <==the affordable one

 

Or join here to be an Elite quant

 

Bryan

NOTE I now post my TRADING ALERTS into my personal FACEBOOK ACCOUNT and TWITTER. Don't worry as I don't post stupid cat videos or what I eat!

Matlab quant finance trading resources with source code for statistical artbitrage aka stat arb

Matlab quant finance trading resources with source code for statistical artbitrage aka stat arb

 

The Trading Systems and Method book has a while chapter on it (Ch 13) but that would entail another investigative process separately. It looks like pair trading is a big part of this which I already covered.

Here are a bunch I am going to go through so stay tuned:

Review of Statistical Arbitrage, Cointegration, and Multivariate Ornstein-Uhlenbeck by Attilio Meucci
http://www.mathworks.com/matlabcentral/fileexchange/index?term=id%3A24120
http://www.mathworks.com/matlabcentral/fileexchange/24120-review-of-statistical-arbitrage–cointegration–and-multivariate-ornstein-uhlenbeck <-Meucci standard
Developing a Financial Market Index Tracker using MATLAB OOP and Genetic Algorithms by Mark Hoyle <–this is a complete Mathworks webinar

https://files.nyu.edu/fma1/public/Lecture_1.pdf |<– excellent highlight of the process from a high level (note pg 11 but more overall on all model types)

http://www.nada.kth.se/utbildning/grukth/exjobb/rapportlistor/2005/rapporter05/zhu_kun_05192.pdf <– so specific coding example but done in C# with good overall explanation
http://www.stanford.edu/class/msande444/2009/2009Projects/2009-2/MSE444.pdf <– good order book description (pg 58 has buy and selling short condition)

file:///C:/Users/i7-acer/Downloads/Caldeira_Moura_2013_Selecao-de-uma-carteira-de-par_10051.pdf  <–no code but focuses on position management and order trigger
http://mathtrading.wordpress.com/ <–no specific Matlab code for stat arb
http://bibliotecadigital.fgv.br/ojs/index.php/rbfin/article/viewFile/4785/7889 <–pg 10 explained order trigger (no mention of source code examples)

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From Baruch MFE: Here is solid review Dr Jim Liew stat arb class for classic quant trading strategy and model algorithm development

Hi there

Here are some courses you can check out at Baruch in their MFE:

Here is solid review Dr Jim Liew stat arb class for classic quant trading strategy and model algorithm development – See more at: http://quantlabs.net/blog/2013/11/from-nyu-here-is-solid-review-dr-jim-liew-stat-arb-class-for-classic-quant-trading-strategy-and-model-algorithm-development/#sthash.3dzRCzDE.dpuf

Today is Black Friday! Just in case you did not know,  I noticed a few months ago that my entire set of courses of my QuantLabs Academy should 30% more than what is listed now. In other words, take advantage as I am currently listing this entire 30% off than what it should be. Oops. Get the entire set of course list, video, and purchase button here:

Buy all our courses in R, Matlab, Quant/HFT, and Trading Software – See more at: http://quantlabs.net/academy/buy-all-our-courses-in-r-matlab-quanthft-and-trading-software/#sthash.v6UjgKgl.dpuf

Happy shopping and saving for all our American friends,

Bryan

NOTE I now post my TRADING ALERTS into my personal FACEBOOK ACCOUNT and TWITTER. Don't worry as I don't post stupid cat videos or what I eat!

From NYU: Here is solid review Dr Jim Liew stat arb class for classic quant trading strategy and model algorithm development

From NYU: Here is solid review Dr Jim Liew stat arb class for classic quant trading strategy and model algorithm development
Thanks to my usual NYC hookup on this:
https://www.quantnet.com/threads/review-of-jim-liews-stat-arb-class.6591/

I stand corrected this course is at Baruch MFE
Join here if you want to learn how to implement strategies like this for your new quant trading business 

NOTE I now post my TRADING ALERTS into my personal FACEBOOK ACCOUNT and TWITTER. Don't worry as I don't post stupid cat videos or what I eat!					

Not much stat arb Matlab examples online. Secret strategy the way for hedge funds and investment banks to profit?

Not much stat arb Matlab examples online. Secret strategy the  way for hedge funds and investment banks to profit?

Does this mean this is the secret sauce for a lot of hedge funds, banks, and other firms on how they succeed. You would think there would be lots online but noooo! Not possible. There are many types of strategies available for this.

Just a thought?

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More on most profitable in HFT among market making, event driven and stat arb? C++ vs C# vs Matlab vs Java and RenTec low latency

 

More on most profitable in HFT among market making, event driven and stat arb? C++ vs C# vs Matlab vs Java and RenTec low latency

 

there were discussion about c++ or matlab and java/c#. Everybody accepted that matlab is powerful to solve issues of numeric and statistic, etc. But when they use it in HFT situation, it’s recognized very slow. Then some people thought c++ was better and others thought a combination of matlab and java or c# could get speedier. I thought many were doubtful about connectivity between the two. A few were successful and said they used their own one for HFT. What do you think of this discussion?

 

 

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could you please expand the concept of predatory algorithms?
Is it just normal bid offer size manipulation that you are talking about?

 

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About statarb there is a problem of decreasing profitability over time as more and more players do the same. I am talking about plain simple pair trading (any asset class) not more complex relationships with fundamentals.

 

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http://cyborgtrading.com/institutional/app/files/media/brochures/anti_gaming_for_tsx_market%20Makers.pdf

 

MATLAB is great for developing and algo and testing In my experience they are powerful yet do not go hand in hand with HFT. If you have something you feel works, get it developed in another environment. Which environment? Well, it all depends on what you are trying to accomplish. If a program is written by a highly skilled C++ programmer (and I mean HIGHLY skilled), then yes it can be extremely fast. But is it scalable? How does it work on one processor vs 30 processors? How long will development take? How easily can you modify it? You need to consider all these things before giving a proper answer.

We program with C# in a .NET environment because it is extremely fast, highly scalable and what would take a good programmer 3 months in C++, takes us days to do the same thing because Microsoft has already pre-built a lot in C#. Everything in C++ has to be built from the ground up. We also have a PHD student working on a project that will prove F# is a far better language to scale algorithms with.

If you can’t win, change the rules of the game.

I hope this makes some sense!

 

thanks for information. I did not know that F# is that better.

it could be the case that the profitability of stat arb is decreasing. It’s a rat race. You have to always optimize parameters as mentioned that the ability to change your parameters to tweak your algorithms real time is crucial. If your watching asset classes be more widened, you could find another arbitrage opportunities, i.g. stocks and FX, stocks and bonds, etc.

 

A colleague used to work at RenTec. From what I gathered, they use a blend of market making combined with predictive algos. So when they don’t have an edge in predicting price they act like market maker, going for ticks. However, when they get a “predictive” signal, then they take directional exposure.
Some more facts…they are the largest user of Mini SP contract by a huge margin. Two russian ex employees quit and tried to start their own fund. Jim Simons hired lawyers to stop them. I never found out if they ultimately did, but considering they Russian I’d bet they eventually did. The annual research budget for RenTec is 200-300million. One ex employee described some of RenTec strategies as borderline “software hacking”.
RenTec holds the patent for parts of code that is used for some execution software.

Getco,tradebot is just brute force. They make more money because they have lower latency. That’s almost all of their game.

RenTec is light years ahead of them. They have slower connections but still outrade.

 

great comment! I would have never guessed RenTec is behind in the latency game.

BTW, what do you mean by borderline “software hacking”?

Also if they hold patents, then they must be publicly listed on the US patent website. Would be interesting to look them up…

 

I wouldn’t say RenTec is behind in latency game, they just don’t solely rely on low latency unlike the others. When you have a predicitive edge over everyone else, you don’t have to rely as much on brute speed. RenTec staff is still composed of mainly researchers not just programmers and IT staff. That pretty much says it all.

The ex employees said “software hacking”. They could just be angry, but who knows. Nothing would surprise me.

They still ahead of everyone else, no matter how you slice it.

The real takeaway is that there have been other shops with multi milion budgets and staff that never made it. It proves that it’s half art, half science.

The original article started here:

http://quantlabs.net/blog/2011/11/which-do-you-think-is-the-most-profitable-in-hft-among-market-making-event-driven-and-stat-arb/

 

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Which do you think is the most profitable in HFT among market making, event driven and stat arb?

Which do you think is the most profitable in HFT among market making, event driven and stat arb?

Many think HFT is profitable, but few only know which is the most profitable. Let’s discuss a piece of the fact.

 

Interesting question! I think market making used to be a great form of income, yet now they are getting gamed by faster and more sophisticated predatory algorithms which take advantage of the rules they are forced to abide by. We are actually working to help market makers get their edge back with what we call combative algorithms. Event driven trading can really be limited to a couple firms that have the money for Ultra low latency algo’s, and unless you have that you are getting in the market while they are getting out! For the most part I would vote stat arb as being the “most profitable”, just because that is what majority of trading strategies

I found in Wikipedia that two HFT butiques occupy 15~20% of the whole equity transactions in the USA, which is surprising. They started as a market maker and made huge money in 2008. The profitability of market making seems to be dependent on market volatilities. In terms of HFT stat arb, are there giants like the market makers?

 

which 2?

 

they are GETCO and TradeBot.

 

In what sense most profitable? Return on investment? Absolute profits? The question could be formulated better.

Having said that, if I had to put my last savings into either of the HFT firms, I would choose market making. The source of income for market maker is the spread (and rebates). Only uninformed traders will give you the spread if the prices are predictable. If the prices are unpredictable you can prove that as a market maker you are guaranteed profit (in theory).

Event-driven arbitrage and statistical arbitrage require research and predicting. You are betting on statistical relationships, which acutally can break down. Profit is not guaranteed.

Finally, many market makers do in fact engage in statistical and event-driven arbitrage: they are not mutually exclusive. For example, your stat arb system tells you that the spread between Google and Apple is too large and you should short one and buy the other. You take these instructions to your market making part and adjust your quotes (price and size).

 

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On my part, firstly absolute profits, then return on investment. If it’s small profits with high return of investment, it’s not enough for me. If its return of investment is very low despite huge profits, it’s not attractive for me, either.

As you said, a market maker seems to be guaranteed. But he still has a risk to be a uninformed trader in the case of trading with/against an informed (institutional) investor. In order to be more informed, what does he have to do? Research, accurate forecasting and brushing up trading techniques easily pop up. In reality, it’s rare to have all skills in one company. So some company has competents in one area and other has them in another area. That’s my general thought, so I asked “are there giants like the market makers?”. The giant market makers may do well in stat arb or event driven. If you know how they do well in both ereas, please let me know.

 

I don’t know many giants. I know RenTec is a giant in statistical aribtrage. They have to have world’s highest average IQ of an employee. Without a numerical phd you don’t have a chance with them.

Then there is Citadel. I think they’re big in market making, but I’m not sure. Googling will definately give you some answers.

You are correct that market makers have to reseach something, but it is still different that if you trade purely stat arb. Besides, if price are random, then there is nothing to research and you are guaranteed a profit.

 

I checked out RecTec webpages and reached to Job Openings page. They want quantitative finance candidates who they say ideally have “A Ph.D. in Computer Science, Mathematics, Physics, Statistics, or a related discipline”. There is no word “a phd in finance”. It seems like computer science is the most important for them. Then I understood the reason why they are a top runner in HFT field.

In terms of how they trade, I didn’t get a clue in the pages unfortunately, cause I couldn’t log in. But time is changing. In1980s, a high IQ guy dropped out from Turtles training course. Nowadays, high IQ guys seem to be successful. Things on the earth must not differ so much from the broard perspective. I am curious what kind of skills they, phds in non finance, have in general.

 

This thread at Nuclear Phynance is the best source on RenTec:

http://www.nuclearphynance.com/Show%20Post.aspx?PostIDKey=4851&PageIndex=12

Also, search for Jim Simmons, the RenTec’s founder. He does not like to give out info about his hedge fund, but there are some interesting interviews with him floating the interwebs.

 

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Would PhDs in RenTec use regression to grasp a price behavior or pattern? Kinds of regression vary from ols (ordinary least square) to ridge. But almost all of them are based on the assumptions of normal distribution, which looks like to have relatively big estimate errors when implementing into practice. I have heard from some statistician that another methods could be better to forecast the future than statistical methods.

In a sense, PhDs in mathematics or physics are advantageous in utilizing regression, cause they understand the fundermentals on the mathematical ( or statistical ) tool. So they could modify or improve it to gain less estimate errors. But nobody knows how. Is there somebody who plays or will play a roll that Donchains did on Turtles.

 

I found another article about HFT houses and other players. A bit interesting.

http://www.thehedgefundjournal.com/magazine/201109/commentary/high-frequency-trading.php

 

thanks for the article. We know the race to zero is occupied by the few firms mentioned in this article and above. Going forward, the only way to compete is to have more flexible algorithms. The ability to change your parameters to tweak your algorithms real time, will ultimately be a longer term solution for success.

 

 

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