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Microsoft Research

Microsoft Research

356,000 subscribers

👁 158,878 views

Mathematical Trading Strategies

Video Overview & Insights

Many trading strategies are based on perceived relationships between the prices of different assets. Some of these relationships are based on fundamental relationships e.g. when oil goes up oil companies do better but transportation companies like airlines do worse. Most of the strategies based on fundamental relationships have been exploited to the point where they are no longer profitable. Using methods developed by Robert Engle and Steve Grainger (for which they received the Nobel Memorial Prize) on can find portfolios of stocks whose aggregate price is mean reverting and one can trade such a portfolio very profitable. The problem is to discover these stock portfolios and determine when these relationships end and the strategy breaks down. We describe an algorithm to search for pairs and successfully trade them. A very important part of the strategy is to determine when to exit and we discuss some possible ways to determine this point.

why does microsoft have presentation for a hedge fund strategy?

— @surething119

More User Perspectives

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Clueless elucubrations😊of nontraders😮

@WealthHealthAndPianoExercises
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Thanks for sharing.

@kelechiokorie
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W thumbnail 🎉

@Overnight_oats2004
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This guy got a case of the “uhh’s”

@CaptinStockMan
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I’d rather just go 100x leverage blind than listen to this man for one more second.
oMG could this man be any more dry

@brian4155150
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He needs to teach this to high school kids for them to determine statistic qualities and pass exam. The hell, what tell you to choose those shares and why would you want to trade.😂😂😂😂😂😂😂😂

@mokadikwasaasa8128
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Walker Susan Thomas William Smith Jessica

@РодионЧаускин
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I need a very good website where I can buy derv indicators for boom and crash

@michauxfwankenda3693
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Another complicated mathematical trading method, to explain som simple

@dumeetuba5304
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Another complicated mathematical trading method, to explain som simple

@dumeetuba5304
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Another complicated mathematical trading method, to explain som simple

@dumeetuba5304
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I see nobody learned anything from LTCM. keep playing with fire.

@SSSalihu1
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I see this pops up again, since I do see videos about trading. And once again, there are many many times when what I call "pointy-headed mathematicians" are so linear in their thinking that they think they can devise a trading method based on a very thin rationale. In my view, nothing will get your broke faster than basing large risk on reversion to the mean. To cut to the chase, I think this whole approach is just stupid. Who am I? A very successful trader who also loves math, but I use it in useful intelligent ways.

@KpxUrz5745
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The worst approach is to try not to fail because that way failing is inevitable; learn from the bible. The secret is to rebrand and repurpose all undesirables.

Mark 8:35 For whosoever will save his life shall lose it; but whosoever shall lose his life for my sake and the gospel’s, the same shall save it.

The only bible I read
1611 King James Bible

@mzwamadodafongqo3814
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Things go up , sell.

@ABC-cw7zv
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Great Lecture

@pobchubbington6759
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Very good lecture.👍🏾👍🏾

@Alienbass1
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Me who just looks for simple breaks and retests (HHs, HLs, LLs, LHs) combined with candlestick shapes following the current trend: 😗......??

@dee23gaming
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Pairs trading seems to try to exploit hedgefunds portfolio adjustment behaviour.

@thedude579
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Can't say I think much of this kind of arbitrage method. There are many far better mathematical ways of augmenting trading. And there are also really robust and timely methods using technical analysis of charts. I know technical analysis sometimes is rejected those who fall for "random walk" studies as some sort of proof that markets must be random. This is utter nonsense. With enough work and patience, the exact point of turnaround in many markets can be identified. Most people crave constant trading action, but superior results can be achieved by not trading at all until the ideal patterns set up. I would never trade any form of arbitrage or "reversion to the mean" methods because those can and will fail very badly.

@KpxUrz5745
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Horrible editing. Show the presentation slides 95% of the time and the speaker talking 5% of the time.

@stevekuhlmey2363
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Where can I find this guy lectures?

@MyLeon99
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I cannot put his fragmented delivery into cohesive thoughts!! "Ahhh,,, ahhhh, ahhh"............. ahh, ahhh,,,. Not a personal attack,,, but how awful a presentation can you make!!!?

@curtjanus5220
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it is just pair trading firstly implemented in 1980s by GS. People still use that but limited. More popular is long -short portfolio to bet on divergence but mean reversion. Because mean reversion may take time and you will get bankrupt before it comes back. Math is useless. Stats is more useful

@juggernautuci8253
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240p? Really microsoft??

@juraganposter
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Hello sir how are you? I have a question for you?

@ATIKURRH
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1999 called. They want their standard definition back.

@bmebri1
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well know ideas and nothing to really do with them...

@cv462-l4x
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this guy doesn't have a clue.
he's using x3 standard deviation stops, while taking x1 standard deviation profits. He might think he's smart, but he has no common sense.

@HitAndMissLab
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I wasn't financially free until my 40s and I'm still in my 40s, bought my second house already, earn on a monthly basis via my investments and got 5 out of 5 goals. Just hope it encourages someone that it doesn't matter if you don't have any of them right now. You can start TODAY regardless your age, invest and change your future. Investing in the financial market is a grand choice i made.
Great video! Thanks for sharing!
Very inspiring! Love this.

@jerryalfred1121
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Great video

@MrEstebanEscudero
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Excelent presentation and content, I am working my way into pair trading however I have heard the law of one price and competiveness make nowadays difficulty to profit from this technique, any insights?

@junal27
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very good video for those who have insomnia. try this :)

@rexvelos2039
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Good material and information for my maths project, thank you

@RenyxGhoul
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Thanks a million for your invaluable content.. it's just wonderful

@amirmoezi8316
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What a brilliant man!

@trumpyla
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This is good.

@odehphilip2778
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Merci crosoft!

@hugoc4606
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price is king .

@abderrahimanzare4137
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Better quality needed...240P come on!

@stockmaster6620
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Has anyone here tried it? how’d it go?

@dronelton
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This is too good. Thank you Microsoft

@subaganesh232
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@queenjoy8891
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no

@sunkrr
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Questions about why do we not see no noise, why isn’t seasonality arbitraged away etc forget that the statistical arbitrage process only found 4 stocks out of 125,000 stocks to build a portfolio. That means the majority of the market players are NOT cointegrated with nicely behaviours stationery prices. Secondly, Renaissance Hedge fund (see Jim Simons interview YouTube) have their own proprietary technology with high barriers to entry and many different strategies. Hedge funds with simple pairs arbitrage strategies are a tiny fish in a big pond. Even so, can you imagine the computing power required to recalibrate models everyday using minute by minute prices so you can pairs trade that same day? His explanation for why the stat arb relationship exists is interesting too and makes sense. So the amount of number crunching requires solid computing power which means stat arb pairs trading is prolly out of reach for retail traders. I really enjoyed the video.

@RaptureReady2025
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So, have you made any money in the stock market with this method?

@orgorg239
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Fuckin' trader idiots sitting there, asking stupid questions and not even able to understand a scatter plot meanwhile their job is to trade with clients' money...fucked up shit. The quant guy knows his shit, never heard of statistical arbitrage before, but it is simple and there has to be good potential in it. Will look for stocks to try this strategy out. Fuck firm trader assholes, quants for life, without us you fucking traders you would be nowhere.

@kjr413