FTEC5530 Quantitative and Algorithmic Trading
Computing Project 2 (Grade Weighting: 40%)
Submission Deadline: April 6, 2020
Violation of the University Honesty Guide as set out in
https://www.cuhk.edu.hk/policy/academichonesty will result in
zero grade in this project.
The present project aims to study the practical implementation of pairs trading.
The basket under monitoring consists of 20 stocks traded at the Hong Kong Stock
Exchange. The pair selection period is the last 9 months of 2017 and you can freely
choose your preferred 20 stocks to be included in the monitoring list.
Task 1 (10%): Write a Python program to perform the pair selection using the following three approaches:
1. The distance method;
2. The cointegration method;
3. Hurst exponent.
Task 2 (10%): For each pair selection method, perform a computer simulation of
pairs trading using the selected pairs for the period from January 2018 to December
Task 3 (20%): Write a report which contains detailed discussions of your program,
parameter selection criteria, and comparison of results obtained by the three methods
in both pair selection and trading performance.
Your electronic submission should include:
1. All the Python program files and the data files the programs run on.
2. The Task 3 report with appropriate illustrations such as graphs and tables.
Remark: Due to the nature of the project there does not exist one and only one “correct” or good solution. Nevertheless, your submission should demonstrate how well
you master the topic and your ability of self learning. Together with the presentation
skill and program readability, they are the key elements our grading will base on. The
followings are some salient points you might find helpful:
(1) The minimum number of selected pairs for Task 1 and Task 2 is by default
one. However, bonus will be given if you can identify up to THREE pairs (but
the reward will be capped on this number).
(2) In our lectures we constantly emphasize the importance of parameter calibration/reoptimization by taking into consideration the newest information (say, via walk
forward optimization). Again, bonus will be awarded if you can introduce this
kind of mechanism.
(3) We mentioned transaction cost in trading system setup. You might like to build
this in when performing Task 2. For your information it can be as low as 0.3%
roundtrip of your trade amount.
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