I'm wondering why this thread seemed to die out in July. Most of the pair traders I know lost lots of money in the past few months.
How is that possible. I thought pairs trading was a no brainer. Just read this thread and you'll see where there must be some mistake. Maybe they were trading pear futures by mistake.
I ran across this article from January http://www.blumontcapital.com/downloads/press_room/012003_HirschGambles.pdf From the article: "She has a proportionally greater short position in Four Seasons than her long position in Fairmont." Even at a 1/1 ratio, all I can say is... ouch!
Hardly. A property of many observed time series, call the series Y, appear to be non-stationary. For example, a simple form of non-stationarity arises when the first differences of a series are white noise. In this case we say the series is integrated of order one, I(1), and the differences: delta(Y) ~ I(0). An important step in the statistical analysis of integrated series was the realization that is also possible for a linear combination of I(1) variables to be I(0). The variables are then said to cointegrate. it is not that pairs trading does not "work anymore," it is that too many smart people are doing it now. nitro
...which is the case of all "not working anymore" strategies e.g. trading systems. Trading is a business like any other, once competition in particular strategy is too high, the margins do not cover expenses.