Pairs Trading vs. Portfolio Optimization

[losemind1]

Pairs Trading vs. Portfolio Optimization



Hi all,



Suppose we have N stocks. And we are looking at the following two types of trading strategies:



1. Pairs Trading:



Select some pairs out and trade these pairs.



2. Portfolio Optimization:



Forecast the returns of each stock, and the volatilitys, throw them into a portfolio optimizer.



And trade the portfolio optimization results.



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What are the difference of these two approaches?



Does approach 1 outperform approach 2?



Thank you!



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Edit: in a), you need a trading strategy; in b), you don't need a trading strategy, just do some forecasting and throw into a portfolio optimizer. I would like to hear about thoughts about these two approaches, eg. Would the approach b) be better than a)? Please restore my question. Thank you!

[CokeHead]

Blendertime

[FDAXHunter]

I like how he spelled "volatilities".

[goldorak]

>I like how he spelled "volatilities".



volatilitys is the unbiased estimator.

[hedgeguy]

Why don't you read (and make a real effort to understand)... anything... in this area before throwing up this vague, generalist tripe on the board?

[losemind1]

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[Reactor Core]

This thread was moved from [url=/Show%20Forum.aspx?ForumIDKey=2]Trading[/url] to [url=/Show%20Forum.aspx?ForumIDKey=12]Trashcan[/url].



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