Should I allow repeating assets in my pair trading mean reversion system?

Is it normal or customary? Or should i only use 1 asset 1 time?

For eg:



pairs = [('MO', 'HSY'),

 ('COST', 'PG'),

 ('COST', 'WMT'),

 ('HSY', 'PM'),

 ('HSY', 'RSG'),]



filtered_pairs = [('MO', 'HSY'), ('COST', 'PG')]

Hi Jane,



In a pair trading mean reversion system, it is generally not advisable to allow repeating assets. This is because including a single asset in multiple pairs may increase the risk of over-exposure to that asset and can skew the results of the trading strategy.



Also, it is important to ensure that the pairs are carefully selected and properly filtered based on criteria such as correlation, cointegration, and stationarity to ensure that the pairs are statistically valid and have a high probability of generating profitable trades.



In your example, it may be a good idea to filter out the pairs that have repeating assets to reduce the risk of over-exposure and potential skewing of results, but it is important to carefully evaluate these pairs based on the aforementioned criteria before using them in a trading strategy.



Hope this helps,



Thanks,

Akshay





 

Namaste.