Financial Analysis - Build a ChatGPT Pairs Trading Bot - Pairs Trading Test

The video tutorial covers pairs trading using synthetic data. It begins with an introduction to pairs trading and the setup of necessary libraries. The tutorial then explains generating mean-reverting signals and prices using random walks. It proceeds to standardize and plot the data, followed by implementing a pairs trading strategy using Bollinger Bands. Finally, the video evaluates the strategy's performance, comparing it with a buy-and-hold approach, and discusses scenarios where pairs trading may or may not be effective.

What is the significance of setting a random seed in the context of pairs trading?

Explain the concept of a random walk and its relevance to stock prices.

How are the prices for asset 2 generated in relation to asset 1?

What is the purpose of computing the rolling mean and standard deviation in pairs trading?

Describe the process of calculating the spread in pairs trading.

What are Bollinger Bands and how are they used in the context of this lecture?

Discuss the implications of extending positions in pairs trading strategies.

How does the performance of the pairs trading strategy compare to a buy and hold strategy?

What factors might lead to the pairs trading strategy underperforming?

In what scenarios might a buy and hold strategy be more effective than pairs trading?