Financial Analysis - Build a ChatGPT Pairs Trading Bot - Return Computation Revisited and Other Extensions (Optional)

The video revisits the concept of returns, focusing on their additivity in portfolios. It explains simple and portfolio returns, highlighting that returns are not inherently additive unless weighted by portfolio weights. The video also discusses the issues with log returns and their additivity, especially in asset-wise scenarios. It explores short selling and how returns are calculated in such cases. Finally, it delves into advanced concepts like co-integration and timing, offering insights into improving portfolio strategies.

How do log returns differ from percent returns in terms of addition?

What is the return for a short sale as discussed in the lecture?

Discuss the implications of using a third weight in a portfolio that includes short positions.

What are some potential improvements to the algorithm discussed in the lecture?