Pair Trading Lab: Analysis MDLZ vs BG

From:

2019-01-02

To:

2024-08-01

HQ Analysis of MDLZ / BG

Symbol	Title	Sector	Industry	M.Cap.[M]	Div Yield	Last Close	AvgVol 200d
MDLZ	Mondelez International Inc	Consumer Defensive	Confectioners	101133	0.0248	75.71	6905913
BG	Bunge Limited	Consumer Defensive	Farm Products	14012	0.0275	98.92	1431034

Orthogonal Spread Analysis

Here we apply an orthogonal regression (also known as total least squares) to both price series. We are interested in some key statistical properties (like β, ...) and in analysing orthogonal residuals:

TLS: MDLZ^*(t) = β * BG^*(t) + α

Regression coefficient α:

39.249183

Regression coefficient β:

0.274746

Standard Deviation (σ):

4.287565

ADF test of residuals (p-value):

0.0016

95% confidence: residuals don't contain a unit root

99% confidence: residuals don't contain a unit root

Mean Reversion Coefficient (MRC):

-0.018450

Half-life:

37.57

Skewness:

0.1937

Kurtosis:

0.7823

Doornik-Hansen normality test (p-value):

(<< 0.0001)

Normality test failed at 95% confidence

Shapiro-Wilk normality test (p-value):

(<< 0.0001)

Normality test failed at 95% confidence

Cointegration Analysis

In this section, Engle-Granger cointegration test is performed using OLS regression method in both directions. Residuals of the regression are plotted and analyzed further:

MDLZ / BG

BG / MDLZ

Profit Analysis

Profit analysis is a set of backtests performed using multiple pair trading models over significant portion of parameter space. Backtest results are displayed in a form of scatter plot. In addition, you can see aggregated statistics in the left panel. All backtests are performed using 100% margin (leverage 1:1). This is the profit analysis where backtested strategies are allowed to open both long and short positions:

MDLZ / BG

BG / MDLZ

This is the profit analysis where backtested strategies are allowed to open long positions only:

MDLZ / BG

BG / MDLZ

This is the profit analysis where backtested strategies are allowed to open short positions only:

MDLZ / BG

BG / MDLZ

Profit Analysis (Inverted!)

This profit analysis has been performed using strategies with inverted signals and transformed prices. Mostly useful for trading pairs composed of an inverse ETF in order to stay market-neutral (more info). "even" means that the first leg is both inverted and transformed, "odd" means that the first leg is transformed but the second leg is inverted.

Backtested strategies have been allowed to open both long and short positions:

This is the profit analysis where backtested strategies are allowed to open long positions only:

This is the profit analysis where backtested strategies are allowed to open short positions only:

Disclaimer: Backtested, simulated or hypothetical performance results have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not represent actual trading. There are numerous factors related to the stock market in general and to the implementation of any stock market timing program, which cannot be fully accounted for in the preparation of hypothetical performance results. The backtested results listed here do not take into consideration slippage, fees, taxes, or dividends and interest earned on cash positions. These factors would affect actual trading results. Simulated, backtested or hypothetical stock trading systems in general are also subject to the fact that they are designed with the benefit of hindsight. Backtested performance does not represent actual performance and should not be interpreted as an indication of such performance. No representation is being made that you will or is likely to achieve profits or losses similar to these being shown. This site provides impersonal educational stock trading information, and therefore, no consideration can or is made toward your financial circumstances. All material presented within is not to be regarded as investment advice, but for general informational purposes only.

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Orthogonal Spread Analysis

Cointegration Analysis

Profit Analysis

Profit Analysis (Inverted!)