Financial Analysis - Build a ChatGPT Pairs Trading Bot - Long-Only Strategy (Code)

The lecture explores the performance of a long only strategy compared to short selling. It demonstrates that while short selling theoretically increases returns, the long only strategy often performs better in practice. The video evaluates various asset pairs, showing that the long only strategy reduces losses and sometimes outperforms buy and hold. The analysis of Coca-Cola and Pepsi reveals a significant performance improvement with the long only strategy. The lecture concludes by discussing the discrepancy between theoretical calculations and real-world returns, emphasizing the importance of limiting exposure to individual assets.

What is the primary adjustment made in the long only strategy to avoid negative positions?

• Set negative positions to zero

• Increase all positions by 1

• Convert all positions to positive

• Double the positive positions

How does the long only strategy perform compared to the buy and hold strategy?

• It performs worse than short selling

• It avoids losses but doesn't always outperform buy and hold

• It never outperforms buy and hold

• It always outperforms buy and hold

Which asset pair showed a slight improvement over buy and hold using the long only strategy?

• Coca-Cola and Pepsi

• Bitcoin and Ethereum

• Visa and MasterCard

• PG and Johnson

What was the performance result of the long only strategy with Coca-Cola and Pepsi?

• 20% decrease

• No change

• 40% increase

• 60% increase

What is a common practice in finance regarding asset exposure?

• Limiting exposure to a maximum percentage

• Investing 100% in a single asset

• Avoiding diversification

• Focusing only on short selling

Why might theoretical calculations not reflect real-world returns?

• They are always accurate

• They ignore market volatility

• They assume constant market conditions

• They overestimate risk

What was the instructor's conclusion about short selling versus long only strategy?

• Long only strategy never performs well

• Long only strategy is less risky

• Short selling always increases returns

• Short selling is more profitable