Peter Hafez
April 12, 2016
Researching and Modelling Big Data for Financial Institutions

Deutsche Bank Research: Enhancing Pairs Trading with News Analytics

Deutsche Bank's recent research shows how they improve pairs trading with RavenPack’s news analytics. Their enhanced signal significantly reduces divergence risk and also boosts the average return per pair.

Here are some of the highlights:
  • The percentage of non-converged pairs dropped by about half from 15% to 7%
  • Average profit per pair increased from 2.3% to 2.8% for the European strategy, and from 1.6% to 1.9% for the US Strategy
  • Return distribution becomes more positively skewed

Attached is a pairs example for Sports Direct Intl and Dixons Carphone between Nov 2014 to Jan 2016.
Overall, the Sports Direct Intl price dropped by more than 40% over a period of two months. Clearly, trading the pair would have realized a loss. However, with access to a real-time news analytics feed, the loss could have been avoided by ignoring pair trades with price divergence supported by negative sentiment and abnormal news volume on either of the two companies (in this case “Sports Direct Intl.”).

Click on the button "learn how Big Data Analytics can help in your financial Application" for more insights, or email info@ravenpack.com.

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