Data Science in R

Chapter 6

Pairs Trading

Cari Kaufman

University of California, Berkeley

Duncan Temple Lang

University of California, Davis

6.1 The Problem

Finance and financial trading are important elements of all economies. Historically, people used various strategies and hunches to choose when to buy and sell stock and which stocks to trade. Increasingly, people try to use data, algorithms and, importantly, statistical methods to develop more automated strategies for determining what and when to trade in order to increase profits. Over the years, there have been many different approaches and algorithms in this direction, and recent developments illustrate computer trading is increasing rapidly. Some people are even developing statistical/machine learning ...