Noted Dr. Ernest Chan has spent years applying his understanding of statistics and probability to the high-intensity world of stock and futures trading. Here he discusses the role and importance of backtesting trading systems and strategies.
Do Factor Models Work in the Short Term?
Besides pair-trading, “factor model” is the most popular workhorse of the statistical arbitrageur…
Maximizing compounded rate of return
A simple formula that few traders utilize…
Cointegration is not the same as correlation
Cointegration is the foundation upon which pairs trading (“statistical arbitrage”) is built.
Gold vs. gold-miners: another arbitrage opportunity?
Recently, there has been mounting interest in buying gold…
How much leverage should you use?
Many hedge fund disasters come not from making the wrong bets, but from making too big a bet by overleveraging…
An arbitrage trade between energy stocks and futures
With a lesson costing $6 billion, Amaranth has taught us an, albeit disastrous, arbitrage trading technique in energy futures…
A ‘Highly Improbable’ event?
A historical analysis of the natural gas spread trade that bought down Amaranth…