Build a Super Advanced Trading Bot on DYDX Hosted on AWS with Python - Trading the Spread Based on Z-Score

The video tutorial explains pairs trading, focusing on the concept of spread, which is the difference between two assets adjusted by a hedge ratio. It details how to go long or short on the spread using examples with QNT and XRP. The Z score is introduced as a measure of how stretched the spread is, indicating when to enter or exit trades. The tutorial covers calculating the Z score and its application in trading strategies, including backtesting results. A practical strategy using a Z score threshold of ±1.5 is demonstrated, highlighting the risks and potential returns of statistical arbitrage.

What is the spread in pairs trading?

What is the significance of the zero line in the context of the spread?

What does going long on a spread mean?

How do you calculate the spread using Series 1 and Series 2?

Explain the concept of the hedge ratio in pairs trading.

How do you determine when to go long or short on a spread?

What is the Z score and how is it used in pairs trading?

Describe the relationship between the Z score and the elastic band analogy.

How does backtesting help in pairs trading strategies?

What are the potential risks associated with statistical arbitrage in pairs trading?