A Cooperative Dynamic Approach to Pairs Trading

<div>Monthly comovement (<span class="nowrap"><svg height="12.5794pt" id="M11" style="vertical-align:-3.29107pt" version="1.1" viewbox="-0.0498162 -9.28833 38.4234 12.5794" width="38.4234pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M645 631C614 643 545 666 457 666C215 666 23 519 23 283C23 90 158 -16 337 -16C412 -16 489 2 522 10C543 39 590 127 606 167L580 181C519 89 459 18 348 18C201 18 122 136 122 287C122 464 244 632 435 632C544 632 602 595 608 472L639 475C643 526 645 581 645 631Z"></path></g><g transform="matrix(.0091,0,0,-0.0091,8.619,3.132)"><path d="M290 377C321 398 342 415 358 430C378 450 389 473 389 502C389 578 329 635 238 635H237C184 635 137 610 109 578L64 515L88 493C112 529 154 573 208 573S303 542 303 482C303 409 233 370 141 341L149 308C165 313 190 319 215 319C272 319 341 283 341 193C342 98 292 43 222 43C163 43 122 72 96 94C88 101 79 100 70 94C61 87 47 73 46 60C44 47 48 37 62 23C76 10 118 -12 165 -12C238 -12 430 62 430 223C430 297 379 359 290 375V377Z"></path></g><g transform="matrix(.0091,0,0,-0.0091,13.051,3.132)"><path d="M329 433H203L239 587L230 596L147 534L123 433H57L30 395L34 388H115L61 129C37 16 59 -12 85 -12C147 -12 222 58 260 98L241 125C212 95 160 62 144 62C132 62 127 71 138 126L192 386L305 394L329 433Z"></path></g><g transform="matrix(.013,0,0,-0.013,16.735,0)"><path d="M300 -147C201 -63 143 98 143 270S200 602 300 686L282 710C136 610 70 450 70 271V270C70 89 136 -72 282 -170L300 -147Z"></path></g><g transform="matrix(.013,0,0,-0.013,21.233,0)"><path d="M412 140C382 77 369 73 315 73H129L270 222C362 320 402 379 402 466C402 571 322 635 234 635C177 635 130 609 99 576L42 495L64 475C90 514 133 568 201 568C274 568 318 519 318 435C318 349 255 267 193 193C144 135 87 78 32 23V0H405C417 45 427 89 440 131L412 140Z"></path></g><g transform="matrix(.013,0,0,-0.013,27.473,0)"><path d="M241 635C89 635 35 457 35 312C35 153 89 -12 240 -12C390 -12 443 166 443 312C443 466 390 635 241 635ZM238 602C329 602 354 454 354 312C354 172 330 22 240 22C152 22 124 173 124 313S148 602 238 602Z"></path></g><g transform="matrix(.013,0,0,-0.013,33.713,0)"><path d="M275 270C275 450 212 609 64 710L45 686C145 604 203 442 203 270S147 -63 45 -147L64 -170C213 -68 275 89 275 270Z"></path></g></svg>)</span> of the 50 stocks with the lower volatility each date from 2014 to 2020. Blue line is the daily comovement, while black line is a moving average of the blue line with a time window of 60 trading days.</div>

Complexity

A Cooperative Dynamic Approach to Pairs Trading

Figure 2