From time to time, experienced traders reach out and ask:
“Why doesn’t PairTrade Finder® use a Kalman filter to calculate dynamic hedge ratios?”
It’s a fair question. Kalman filters are widely used in quantitative finance and are often presented as a more advanced way to trade pairs.
So this post explains our thinking clearly.
PairTrade Finder® is designed to capture most of the statistical edge—without the complexity that often reduces real-world performance.
In practice, as a rule we seek to target a platform that delivers 80% of the benefit of institutional grade models with around 20% of the complexity.
… Read More →
