Performance Metrics
Key metrics include Sharpe ratio, maximum drawdown, win rate, profit factor, and average trade duration. Compare against baseline strategies and adjust parameters based on out-of-sample results.
| Metric | Value | Benchmark |
|---|---|---|
| Sharpe Ratio | 1.85 | 1.20 |
| Max Drawdown | -12.4% | -18.0% |
| Win Rate | 58.2% | 52.0% |
| Profit Factor | 1.72 | 1.45 |
Implementation
Implementation of pairs trading algorithm follows a modular architecture. Configuration files define parameters, strategy modules handle logic, and exchange adapters manage execution.
Core Concepts
Understanding pairs trading algorithm requires familiarity with market microstructure, order flow dynamics, and execution latency. The following sections detail each component.
Risk Considerations
Risk management for pairs trading algorithm addresses position limits, stop loss placement, correlation exposure, and worst-case drawdown scenarios. Regular monitoring prevents drift from intended behavior.
Production Notes
In production, pairs trading algorithm requires monitoring for API rate limits, database connection pooling, log rotation, alert thresholds, and automated restart procedures. Document runbooks for incident response.