Asset Classes

Free investment financial education

Language

Multilingual content from IBKR

Close Navigation
Learn more about IBKR accounts

K-Means Clustering Algorithm For Pair Selection In Python – Part V

Posted October 23, 2019 at 10:41 am
Lamarcus Coleman
QuantInsti

See the prior installment in this series here.

Spread is not Cointegrated

The results of the Augmented Dickey Fuller Test showed that Walmart and Target were not cointegrated. This is determined by a test statistic that is not less than one of the critical values. If you would like to view the actual print out of the ADF test you can do so by keying ADF. In the above example, we use indexing to decipher between the t-statistic and critical values. The statsmodels ADF Test provides you with other useful information such as the p-value. You can learn more about the ADF test here

#printing out the results of the adf test
adf
(-0.38706825965317432,
0.91223562790079438,
0,
503,
{‘1%’: -3.4434175660489905,
‘10%’: -2.5698395516760275,
‘5%’: -2.8673031724657454},
1190.4266834075452)

Okay, let’s try one more. Maybe we’ll have better luck identifying a tradable relationship in a brute force manner. How about Dollar Tree and Dollar General. They’re both discount retailers and look they both even have a dollar in their names. Since we’ve gotten the hang of things, we jump right into the ADF test. Let’s first import the data for DLTR and DG.

#importing dltr and dg
dltr=pdr.get_data_yahoo(‘DLTR’,start, end)
dg=pdr.get_data_yahoo(‘DG’,start, end)

Stay tuned -for the next installment in this series. Lamarcus will demonstrate how to add these stocks to the newDF and create their spread.

Any trading symbols displayed are for illustrative purposes only and are not intended to portray recommendations.

Disclaimer: All investments and trading in the stock market involve risk. Any decisions to place trades in the financial markets, including trading in stock or options or other financial instruments is a personal decision that should only be made after thorough research, including a personal risk and financial assessment and the engagement of professional assistance to the extent you believe necessary. The trading strategies or related information mentioned in this article is for informational purposes only.

Disclosure: Interactive Brokers

Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from QuantInsti and is being posted with its permission. The views expressed in this material are solely those of the author and/or QuantInsti and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

IBKR Campus Newsletters

This website uses cookies to collect usage information in order to offer a better browsing experience. By browsing this site or by clicking on the "ACCEPT COOKIES" button you accept our Cookie Policy.