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A Machine Learning based Pairs Trading Investment Strategy

Record Type:	Language materials, printed : Monograph/item
Title/Author:	A Machine Learning based Pairs Trading Investment Strategy/ by Simão Moraes Sarmento, Nuno Horta.
Author:	Moraes Sarmento, Simão.
other author:	Horta, Nuno.
Description:	IX, 104 p. 38 illus., 16 illus. in color.online resource. :
Contained By:	Springer Nature eBook
Subject:	Computational intelligence. -
Online resource:	https://doi.org/10.1007/978-3-030-47251-1
ISBN:	9783030472511

A Machine Learning based Pairs Trading Investment Strategy
Moraes Sarmento, Simão.

A Machine Learning based Pairs Trading Investment Strategy[electronic resource] /by Simão Moraes Sarmento, Nuno Horta. - 1st ed. 2021. - IX, 104 p. 38 illus., 16 illus. in color.online resource. - SpringerBriefs in Computational Intelligence,2625-3712. - SpringerBriefs in Computational Intelligence,.

Introduction -- Pairs Trading - Background and Related Work -- Proposed Pairs Selection Framework -- Proposed Trading Model -- Implementation -- Results -- Conclusions and Future Work.

This book investigates the application of promising machine learning techniques to address two problems: (i) how to find profitable pairs while constraining the search space and (ii) how to avoid long decline periods due to prolonged divergent pairs. It also proposes the integration of an unsupervised learning algorithm, OPTICS, to handle problem (i), and demonstrates that the suggested technique can outperform the common pairs search methods, achieving an average portfolio Sharpe ratio of 3.79, in comparison to 3.58 and 2.59 obtained using standard approaches. For problem (ii), the authors introduce a forecasting-based trading model capable of reducing the periods of portfolio decline by 75%. However, this comes at the expense of decreasing overall profitability. The authors also test the proposed strategy using an ARMA model, an LSTM and an LSTM encoder-decoder.

ISBN: 9783030472511

Standard No.: 10.1007/978-3-030-47251-1doiSubjects--Topical Terms:

568984
Computational intelligence.

LC Class. No.: Q342

Dewey Class. No.: 006.3

A Machine Learning based Pairs Trading Investment Strategy
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