QUANTITATIVE TRADING WITH R by HARRY GEORGAKOPOULOS

Author:HARRY GEORGAKOPOULOS
Language: eng
Format: epub
ISBN: 9781137437464
Publisher: Palgrave Macmillan
Published: 2015-03-12T16:00:00+00:00

Let us take a look at what the equivalent spread on returns looks like. The only thing we have to change is to compute the betas between the returns rather than the price differences.

The end result of this code is the data frame data that looks like this:

Figure 6.7 Rolling beta spread.

Visually, the spread looks more mean reverting than it did before. In order to determine decent buy and exit points, we can keep going with a ten day rolling window and compute what the spread standard deviation was over that historical time period. We will make the assumption that going forward, the variability of the spread will remain the same.

The spread we will use will be the one based on price differences.

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