On Wednesday we held a webinar "Learn to Trade Like a Math Geek". We had great turnout, and I want to thank everyone who joined us. I've received a lot of emails asking about the recording, which you can find at the bottom of this blog post. We discussed some of the key math terms involved in statistical arbitrage spread trading. Many of the questions were specifically about calculations and how they are done. It is important not to get too bogged down with the math. Cointegration tells you that the two stocks have a history of reverting to a mean level like a spring. When you design your statistical arbitrage trading framework, you want to build a portfolio of these spreads. You should see that most of them behave nicely, while a few continue on their trend away from the mean. You'll develop your own recipes for determining when spreads will behave well and when they will not. You may even develop some recipes for trading spreads that are very different, like the earnings strategy we discussed at the end. The beauty of statistical arbitrage spread trading is that you can design your own strategy however you find it works best. Here is the replay.
Written by Jennifer Galperin. Follow me on Twitter and StockTwits.